Implied Forward Rates

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Implied Forward Rates

Postby anirban.dutta » Mon May 12, 2014 4:00 am

Suppose that the 6-month, 12-month, 18-month, and 24-month zero rates are 5.0%, 6.0%, 6.5%, and 7.0%, respectively. What is the 2-year par yield?

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Implied Forward Rates

Postby edupristine » Thu May 15, 2014 7:08 am

Par Yield is calculated as: (1-P(n))/Sum(P(i)) = (1-1/(1+.035)^4)/{1/(1+.025)+1/(1+.03)^2+1/(1+.0325)^3+(1+.035)^4} = 0.03476. Par Yield = 2*.03476 = 6.95%

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