Global Capital Market-HMW2

8954 45 30268 08736 5 32739 08501 55 35214 08253 6

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Unformatted text preview: 3.5214% 0.8253 6 3.7694% 0.7993 6.5 4.0177% 0.7722 7 4.2661% 0.7442 7.5 4.5148% 0.7155 8 4.7636% 0.6862 8.5 5.0125% 0.6565 9 5.2616% 0.6266 9.5 5.5107% 0.5966 10 5.7599% 0.5667 ) 7.0000% 6.0000% Six-month forward rate 5.0000% 4.0000% 3.0000% Spot rate 2.0000% 1.0000% 0.0000% 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 5.5 6 6.5 7 7.5 8 8.5 9 9.5 6. The forward rate curve is obviously higher than the spot rate curve (zero coupon term structure), it is truly a general property. Because the spot rate is approximately the geometric average of the half year spot rate and the forward rate after the 0.5 year, it will be lower than the maximum value between the half year spot rate and the corresponding forward rate. Given the expected future interest rate (forward rate) with longer term (longer than half year) being higher than the half year spot rate, which is the current interest rate, the forward rate curve will be higher than the spot rate with half year longer term. Question 4 a) From the two spot rate, we have the...
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This document was uploaded on 02/15/2014 for the course CAREY BUSI Global Cap at Johns Hopkins.

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