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CFA Level 2
Fixed Income

Calculating One-Year Forward Rate

Hard Term Structure Dynamics Forward Rates

XYZ Corporation is evaluating its current debt structure and potential future borrowing strategies based on prevailing interest rates. The current zero-coupon yield for one year is 2.5%, and for two years, it is 3.0%. The company needs to determine the one-year forward rate one year from now (commonly denoted as F1,2). Given the information, calculate the forward rate.

To calculate the one-year forward rate for the period starting one year from now, you can utilize the relationship between spot rates and forward rates.

Hint

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