Financial Risk Manager Part 1

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Explanation:

Step 1: Compute the 2-year spot rate:

Step 2: Compute the forward rate:

(1 + \text{semiannual spot}_{1.5})^3 \times (1 + \text{forward rate}_{1.5F2}) = (1 + \text{semiannual spot}_2)^4

\text{forward rate} = \frac{1.072069}{1.049701} - 1 = 2.13\% \text{ per half year}

\text{annual forward rate} = 2.13\% \times 2 = 4.26\%

(Book 4, Module 56.2, LO 56.c)

Explanation:

Step 1: Compute the 2-year spot rate:

Step 2: Compute the forward rate:

(1 + \text{semiannual spot}_{1.5})^3 \times (1 + \text{forward rate}_{1.5F2}) = (1 + \text{semiannual spot}_2)^4

\text{forward rate} = \frac{1.072069}{1.049701} - 1 = 2.13\% \text{ per half year}

\text{annual forward rate} = 2.13\% \times 2 = 4.26\%

(Book 4, Module 56.2, LO 56.c)

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Maturity	STRIPS Price	Spot Rate	Forward Rate
0.5 years	98.7654	2.50%	2.50%
1.0 years	97.0662	3.00%	3.50%
1.5 years	95.2652	3.26%	3.78%
2.0 years	93.2775	?	?

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UAnonymous

Last updated: June 29, 2026 at 12:47

1.755% 4.26%

3.510% 4.06%

1.755% 4.06%

3.510% 4.26%