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The yield to maturity on one year zero coupon bonds is 7.3%. Tthe yield to maturity on two year zero coupon bonds is 8.3%.What is the forward rate of interest for the second year?
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The yield to maturity on one year zero coupon bonds is 7.3%. Tthe yield to maturity on two year zero coupon bonds is 8.3%.What is the forward rate of interest for the second year?

User Dhobbs
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7 votes

Answer:

Assume the forward rate for year 2 = i YTM 2 year maturity bond 8.30% YTM 1 year maturity bond 7.30% So , 1.083^2 =(1.073)^*(1+i) [equivalent yield in 2years]…

User Kemesha
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