Question
Assume the current 6-month rate is 1.5% and also assume the 6-month spot rate next period can take the following two values with equal probability:
Assume the current 6-month rate is 1.5% and also assume the 6-month spot rate next period can take the following two values with equal probability: 2% and 1% (the standard deviation is .5%). Assume Lambda = .5. If CAPM holds, what is the current 12-month spot rate?
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Matlab An Introduction with Applications
Authors: Amos Gilat
5th edition
1118629868, 978-1118801802, 1118801806, 978-1118629864
