Exercise 5.3

Given that the 4-year and 5-year spot rates are 10.592% and 11.021%, respectively, what is the markets expectation of one-year rate, starting four years from now? In other words, what is the implied one-year forward rate in four years? (assuming semiannual compounding)

SHOW WORK

A.) 6.35%

B.) 6.38%

C.) 12.70%

D.) 12.75%

E.) Other...._________