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Exam question #10

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  • Exam question #10

    On Exam question # 10, why wouldn't you interpret "One-year forward rate for year two" as a one year deferred rate for year two starting at year two (so the implied rate for year three) instead of a one year deferred rate for year one starting at year two (implied rate for year two)?
    Last edited by Ken; May 27 2005, 04:33 PM. Reason: clarification
    Whether you are the lion or the gazelle, when the sun comes up, you better be running.

  • #2
    Originally posted by Ken
    On Exam question # 10, why wouldn't you interpret "One-year forward rate for year two" as a one year deferred rate for year two starting at year two (so the implied rate for year three) instead of a one year deferred rate for year one starting at year two (implied rate for year two)?

    One year forward rate for year 2 is the one year spot rate that occurs throughout year 2, ie. from time 1 to time 2.

    Kellison used a similar example in his book.

    Hope that helps.

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    • #3
      I hope you don't mind pointing me towards a page number.
      Whether you are the lion or the gazelle, when the sun comes up, you better be running.

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      • #4
        Originally posted by Ken
        I hope you don't mind pointing me towards a page number.
        page 312, third paragraph that begins with "In order..."

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        • #5
          They've changed their answer key after they decided that this question was ambiguous.
          Whether you are the lion or the gazelle, when the sun comes up, you better be running.

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