Question #58
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 23
Status: Unattempted
Question
Given annual spot interest rates for 1 year, 2 years, 3 years, 4 years, and 5 years, the maximum number of forward rates that can be derived is closest to:
Answer Choices:
A. 5
B. 8
C. 10
Explanation
Select all forward rates ƒ(j,k) such that j+k ≤ 5. There are 10 forward rates possible: ƒ(1,1),
ƒ(1,2), ƒ(1,3), ƒ(1,4), ƒ(2,1), ƒ(2,2), ƒ(2,3), ƒ(3,1), ƒ(3,2), ƒ(4,1)