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Financial Mathematics Old FM Forum

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Old 04-14-2018, 01:05 AM
joytoszewing joytoszewing is offline
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Can anyone provide the solution for the following question?

The one-year forward rate for year 2 is 4%. The four-year spot rate is 10%. The expected spot rate at the end of year 2 on a zero-coupon bond maturing at the end of year 4 is 7%. Determine the one-year spot rate.
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Old 04-14-2018, 01:42 AM
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Breadmaker Breadmaker is offline
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Two choices: invest for a full 4 years, or keep reinvesting for various terms. Either way, you should have the same amount of money at the end of 4 years.
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