## Question

# Given the observed yields below, what is the 1-year forward rate, 4 years from now? [Hint: This is the 1-year return that will take you

Given the observed yields below, what is the 1-year forward rate, 4 years from now?

[Hint: This is the 1-year return that will take you from the 4-year **average** annualized return (yield) to the 5-year **average** annualized return)

- 4-year yield = 3.5%
- 5-year yield = 4.0%

*Forward rate (semi-annual) = [(1 + longer maturity rate/2)^# of periods/ (1 + shorter maturity rate/2)^(# of periods)] - 1*

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