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The 6-month spot rate is 10%. The 6-month rate six months from now is expected to be 14.019% and the 6-month rate one year from
The 6-month spot rate is 10%. The 6-month rate six months from now is expected to be 14.019% and the 6-month rate one year from now is expected to be 21.128%. All these rates are on a semiannual bond equivalent basis and so should be your solutions below.
Hint: Draw out the timeline and try to locate the rate you need to calculate.
1) What is the 1-year spot rate?
2) What 1-year rate do you expect to see six months from today?
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