Answer:
7.935%
Step-by-step explanation:
The computation of the interest rate on 1-year CDs, 4 years forward is shown below:
We Use expectation theory in this question which is
(1 + year 5 CD rate)^number of years = (1 + year 4 CD rate)^number of years × (1 +1 year four year forward rate )
(1 + 5.5%)^5 = (1 + 4.9%)^4 × (1 + year 1 four year forward rate)
1.3069600064 = 1.2108823608 ×(1 + 1 year rate four year forward rate)
So, 1 year four rate forward rate is 7.935%