Assume that the 1-year interest rate is 6% and the 2-year interest rate is 7% per year.

Question:

Assume that the 1-year interest rate is 6% and the 2-year interest rate is 7% per year. You approach a bank and ask at what rate the bank will promise to make a 1-year loan in 12 months' time. The bank offers to make a forward commitment to lend to you at 12%. Would you accept the offer? Can you think of a simple, cheaper alternative?
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Fundamentals of Corporate Finance

ISBN: 978-1259024962

6th Canadian edition

Authors: Richard Brealey, Stewart Myers, Alan Marcus, Devashis Mitra, Elizabeth Maynes, William Lim

Question Posted: