A financial analyst at a fixed-income investment fund is tasked with creating a risk-free forward rate curve. The analyst has provided the following term structure for risk-free spot rates:

Spot Rates Time (T)
2.5% 4
2.0% 5
1.5% 6
1.0% 10
0.5%
0.0%
-0.5%

Based on the given spot rates, determine which chart most accurately portrays the 1-year forward rate curve starting from each time T?

Exam-Like

A

2.5%

6.7%

B

2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5%

23.3%

C

2.5%

9.3%

D

2.5% 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5%

60.6%

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A financial analyst at a fixed-income investment fund is tasked with creating a risk-free forward rate curve. The analyst has provided the following term structure for risk-free spot rates: | Spot Rates | Time (T) | |-------------|-----------| | 2.5% | 4 | | 2.0% | 5 | | 1.5% | 6 | | 1.0% | 10 | | 0.5% | | | 0.0% | | | -0.5% | | Based on the given spot rates, determine which chart most accurately portrays the 1-year forward rate curve starting from each time T? | Financial Risk Manager Part 1 Quiz - LeetQuiz