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.

$R1=4\%.$

$R2=5\%$

$R3=6\mathrm{.}5\%$

$R4=8\%$

Given this information, calculate one$-$year forward rate for a one$-$year loan beginning $\frac{1}{29}\frac{?}{2025}$ and ending

on $\frac{1}{29}\frac{?}{2026}$

Calculate the two$-$year forward rate for a one$-$year loan beginning $\frac{1}{29}\frac{?}{2026}$ and ending on $\frac{1}{29}\frac{?}{2027}$

Calculate the three$-$year forward rate for a one$-$year loan beginning $\frac{1}{29}\frac{?}{2027}$ and ending on $\frac{1}{29}\frac{?}{2028}$

Calculate the two$-$year forward rate for a two$-$year loan beginning $\frac{1}{29}\frac{?}{2026}$ and ending on $\frac{1}{29}\frac{?}{2028}$