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Question 18.13: Suppose that the one-year spot rate is 4.1% and the two-year...

Suppose that the one-year spot rate is 4.1% and the two-year spot rate is 4.6%. What is the one-year forward rate one year from now?

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Solve for r in the following:

\begin{array}{l}(1+0.046)^{2}=(1+0.041) \times(1+r) \\1.094116=1.041 \times(1+r) \\(1+r)=1.094116 \div 1.041 \\r=5.1024 \%\end{array}

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