Exam question #10

[Ken]

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]

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]

I hope you don't mind pointing me towards a page number.

[Krieger]

I hope you don't mind pointing me towards a page number.

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

[Ken]

They've changed their answer key after they decided that this question was ambiguous.