Question: Given the current (today's) interest rate structure (assume that there are no transactions costs in the marketplace and discrete annual compounding): Year 1 2 3

Given the current (today's) interest rate structure (assume that there are no transactions costs in the marketplace and discrete annual compounding):

Year 1 2 3

Interest rate 5.5% 6.25% 8.0%

What is the one (1) year 1,t + 2 forward rate, two years in the future (r )? (That is, what is the one (1) year forward rate implied by the current interest rate on the three (3) year contract?)

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