1．e one-year spot rate is 5 percent and the two-year spot rate is 6.5 percent. What is the one-year forward rate starting one year from now?

A)   5.00%.

B)   8.02%.

C)   7.87%.

D)   8.00%.

2．ich of the following statements regarding forward rates is FALSE?

A)   Forward rates do not account for the market's tolerance for risk.

B)   Forward rates may be estimated from spot rates.

C)   Forward rates contain information regarding market participants' collective expectations regarding future interest rates.

D)   By the aggregation of forward rates, spot rates can be estimated.

3．ven the following forward rates, the value of a 4-year, 11 percent annual pay, $1,000 par bond, is closest to:

Note that the year 1 rate is the current rate (or spot rate) on a 1-year security.

A)   $1,060.36.

B)   $984.25.

C)   $1,052.63.

D)   $1,123.65.

答案和详解如下：

1．e one-year spot rate is 5 percent and the two-year spot rate is 6.5 percent. What is the one-year forward rate starting one year from now?

A)   5.00%.

B)   8.02%.

C)   7.87%.

D)   8.00%.

The correct answer was B)

The forward rate is computed as follows:

One-year forward rate = 1.065²/1.05 – 1 = 8.02%

2．ich of the following statements regarding forward rates is FALSE?

A)   Forward rates do not account for the market's tolerance for risk.

B)   Forward rates may be estimated from spot rates.

C)   Forward rates contain information regarding market participants' collective expectations regarding future interest rates.

D)   By the aggregation of forward rates, spot rates can be estimated.

The correct answer was A)

Spot interest rates are the result of market participant’s tolerance for risk and their collective view regarding the future path of interest rates. If we assume that these results are purely a function of expectations, we can use spot rates to estimate the market’s consensus on forward interest rates.

3．ven the following forward rates, the value of a 4-year, 11 percent annual pay, $1,000 par bond, is closest to:

Year	Rate
1	7.00%
2	8.15%
3	10.30%
4	12.00%

Note that the year 1 rate is the current rate (or spot rate) on a 1-year security.

A)   $1,060.36.

B)   $984.25.

C)   $1,052.63.

D)   $1,123.65.

The correct answer was A)

Spot Rates:
Year 1 = 7%.
Year 2 = [(1.07)(1.0815)]^1/2 – 1 = 7.57%.
Year 3 = [(1.07)(1.0815)(1.103)]^1/3 – 1 = 8.48%.
Year 4 = [(1.07)(1.0815)(1.103)(1.120)]^1/4 – 1 = 9.35%.

Bond Value:
N=1; FV = 110; I/Y = 7; CPT PV =	102.80
N=2; FV = 110; I/Y=7.57; CPT PV =	95.06
N=3; FV = 110; I/Y = 8.48; CPT PV =	86.17
N=4; FV=1,110; I/Y = 9.35; CPT PV =	776.33
	1,060.36