Question: table below: Take two spot-interest curves. One is much steeper than the other as shown in the Year 1 Year 2 Curve 1 1%

table below: Take two spot-interest curves. One is much steeper than the

table below: Take two spot-interest curves. One is much steeper than the other as shown in the Year 1 Year 2 Curve 1 1% 2% Curve 2 1% 4% Explain why forward interest (one year within one year) rates will be much lower with curve 1 than with curve 2. Also explain why 100 euros you receive on year 2 is worth less today according to curve 2 than according to curve 1.

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Curve 1 has a relatively shallower slope compared to Curve 2 indicating that interest rates increase at a slower pace over time in Curve 1 The steeper ... View full answer

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