Instructions

This is the first of six problem sets. We will choose the best four grades of the Six problem sets for grading.

The Problem sets are worth totally $20\%$ of the grade. This Problem Set # $1$ is worth $5\%$ of the grade.

Please upload the answer as a separate file. In your answer, show how you got the answer.

You will not be posting it as a discussion in public.

Problem $-$ Forecast Forward Rates

Problem in Forecasting Interest Rates based on unbiased expectations theory:

These are the rates today $($January $29,2024)$ for loans of equal risk.

R$1=4\%.$

R$2=5\%$

R$3=6\mathrm{.}5\%$

R$4=8\%$

Given this information, calculate one$-$year forward rate for a one$-$year loan beginning $1/29/2025$ and ending on $1/29/2026$

Calculate the two$-$year forward rate for a one$-$year loan beginning $1/29/2026$ and ending on $1/29/2027$

Calculate the three$-$year forward rate for a one$-$year loan beginning $1/29/2027$ and ending on $1/29/2028$

Calculate the two$-$year forward rate for a two$-$year loan beginning $1/29/2026$ and ending on $1/29/2028$