PDA

View Full Version : Exam question #10

Ken
May 27th 2005, 04:08 PM
On Exam question # 10, why wouldn't you interpret "One-year forward rate for year two" as a one year deferred rate for year two starting at year two (so the implied rate for year three) instead of a one year deferred rate for year one starting at year two (implied rate for year two)?

Krieger
May 27th 2005, 06:22 PM
On Exam question # 10, why wouldn't you interpret "One-year forward rate for year two" as a one year deferred rate for year two starting at year two (so the implied rate for year three) instead of a one year deferred rate for year one starting at year two (implied rate for year two)?

One year forward rate for year 2 is the one year spot rate that occurs throughout year 2, ie. from time 1 to time 2.

Kellison used a similar example in his book.

Hope that helps.

Ken
May 30th 2005, 07:45 PM
I hope you don't mind pointing me towards a page number.

Krieger
May 30th 2005, 11:16 PM
I hope you don't mind pointing me towards a page number.

page 312, third paragraph that begins with "In order..."

Ken
July 8th 2005, 03:28 PM
They've changed their answer key after they decided that this question was ambiguous.