Suppose the 8-year spot interest rate is 8 percent and the 4-year spot rate is 7 percent. The forecasted 2-year rate four years from now is 6.25 percent. What is the implied forward rate on a 2-year bond originating 6 years from now? {HINT: Under the expectations hypothesis, in equilibrium an investor with an 8-year holding period will be indifferent between investing in an 8-year bond or a combination of securities over the same period.}

Respuesta :

Answer:

11.84%

Explanation:

8-year spot interest rate is 8 percent

4-year spot rate is 7 percent

Forecasted 2-year rate

(1.08)^8 =(1.07)^4 ×(1.0625)^2(1 + t+5f2)^2

(1+t+5f2)^2=(1.08)^8 /(1.07)^4 ×(1.0625)^2

=1.8509/1.3107×1.1289

=(1.8509/1.4796)^1/2

=(1.2509^1/2)-1

t+5f2=1.1184-1

=0.1184 ×100

=11.84%