- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 9. The Term Structure of Interest Rates: Spot, Par, and Forward Curves
- Subject 2. Par and Forward Rates
CFA Practice Question
Using the rates of z1= 3.00%, f1,1= 3.60%, f2,1= 3.92%, f3,1= 5.15%, compute the period three (1.5 years) spot rate. fn,m refers to forward rate starting from period n for m period(s).
B. 3.506%
C. 5.352%
A. 1.784%
B. 3.506%
C. 5.352%
Correct Answer: B
Annual spot rate = 1.753(2) = 3.506%
z3 = [(1 +.015)(1+ .018) (1+ .0196)]1/3 -1 = [1.05352]1/3 -1 = 1.753 %
Annual spot rate = 1.753(2) = 3.506%
User Contributed Comments 7
| User | Comment |
|---|---|
| ramdabom | Do you need to use the semi-annual rates? |
| charlie | yes you need to use semi-annual rates. |
| mountaingoat | i need help in how the equation for z3 was derived from: (1+ jFk)^(k-j) formula from the study notes. |
| surjoy | Look @ CFA volume 5 book. page no. 458 |
| Richie188 | curriculum page 426 |
| bammi1 | This could more easily be solved as [(1+.03)(1+.036)(1+.0392)]^(1/3) this way you don't have to remember to multiply your answer by 2. |
| CFALucille | bammi1- thanks, you're right, there's no weird compounding or anything to worry about; it's exactly the same |