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Use the term structure below for problems 1 - 5: Maturity Spot Rate Forward Rate 1 4.0% 2 4.25% 3 4.75% 4 5.25% 5 6.0%

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Use the term structure below for problems 1 - 5: Maturity Spot Rate Forward Rate 1 4.0% 2 4.25% 3 4.75% 4 5.25% 5 6.0% 6 6.75% 1. Calculate the 1-year forward rate as quoted today (year zero) for years 1, 2, 3, 4 & 5. Show each of the spot and forward rates on the time-line below. (For simplicity, you can use annual compounding.) 0 1 2 3 4 5 6 0,1 -1,2------ --2,3------ 3,4 -4,5------ -Y0,2----- -f0,3- -ro,4- -ro,5- -r5.6

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