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1. Suppose the one-year rate is 6% and the two-year rate is 7%, what is the one-year forward rate? 2. Suppose you want to start
1. Suppose the one-year rate is 6% and the two-year rate is 7%, what is the one-year forward rate?
2. Suppose you want to start a business in three years, and you need a loan for four years once the business is created (for years 4, 5, 6, and 7). The bank has told you that the three-year rate is 7%, the four-year rate is 7.5%, and the seven-year rate is 8.5%. What is the rate in year 4, 5, 6, and 7, respectively?
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