It is April 1 and your mother tells you that the forward rate for year 2, i. f 1,2 , is -5% (yes.negative! You ask her about the current 1-year spot…

It is April 1 and your mother tells you that the forward rate for year 2, i. f 1,2 , is -5% (yes.negative! You ask her about the current 1-year spot….

It is April 1 and your mother tells you that the forward rate for year 2, i.e. f1,2, is -5% (yes…negative!). You ask her about the current 1-year spot rate, which she informs you is 5%. Not having been born yesterday, you ask her to wait while you make a few calculations. Note that all yields are effective annual yields. Please include detailed steps and/or excel worksheet.

A.

It is April 1 and your mother tells you that the forward rate for year 2, i. f 1,2 , is -5% (yes.negative! You ask her about the current 1-year spot…