If you note the following yield curve in The Wall Street Jou

If you note the following yield curve in The Wall Street Journal, what is the one-year forward rate for the period beginning one year from today, ₂f₁ according to the unbiased expectations theory? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

If you note the following yield curve in The Wall Street Journal, what is the one-year forward rate for the period beginning one year from today, 2f1 according to the unbiased expectations theory? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Solution

Maturity Yield   One day 2.56%      One year 2.68         Two years 2.82         Three years 2.93 One-year forward rate % R2 = 0.0282 = (1+0.0268)(1+f1)^1/2-1 (1.0282^2/1.0268)-1 = f1 0.029602 2.96% The one year forward rate would be 2.96%