Suppose the spot rates of interest for investment horizons of 1 to 5 years are 4%, and
Fantastic news! We've Found the answer you've been seeking!
Question:
Suppose the spot rates of interest for investment horizons of 1 to 5 years are 4%, and for 6 to 10 years are 5%.
a.) Compute the forward rates of interest for t=1, 2, 3, 4, 5, 6, 7, 8, 9 and 10
b.) Calculate the present value of an annuity-immediate of $100 over 10 years
c.) Compute the future value of the annuity-immediate at the end of year 10, assuming future payments earn the forward rates of interest, using equation (3.18).
Equation (3.18):
PLEAS SHOW ALL WORK BY HAND, WITHOUT USING A FINANCE CALCULATOR OR EXCEL.
Posted Date: