Question

Calculate the forward rate for (i) the second year; (ii) the third year; (iii) the fourth year. (Do not round intermediate calculations. Round your answers to the nearest whole percent.) Maturity (years) Price of Bond 1 $ 943.40 2 898.47 3 847.62 4 792.16

Answer 1

Bond 1 : 4.38%

Bond 2 : 5.91%

Bond 3 : 6.07%

Bond 4 : 7.21%

Step-by-step explanation:

The face value of the bond is assumed to be $1,000

Price of Bond 1 : 943.40 = 1000 / (1 + x1) ^1

x1 = 4.38%

Price of Bond 2 : 898.47 = 1000 / (1 + x1) ^2

x1 = 5.91%

Price of Bond 3 : 847.62 = 1000 / (1 + x1) ^3

x1 = 6.07%

Price of Bond 1 : 792.16 = 1000 / (1 + x1) ^4

x1 = 7.21%