- 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
The minimum data required to calculate the implied forward rate for five years beginning two years from now would be ______.
B. the two-year and seven-year spot rates
C. spot rates at six-month intervals for the seven-year period
A. spot rates at six-month intervals for two years and the seven-year spot rate
B. the two-year and seven-year spot rates
C. spot rates at six-month intervals for the seven-year period
Correct Answer: B
The theoretical spot rates are used to compute the implied forward rate for any time in the future for any investment horizon.
User Contributed Comments 3
| User | Comment |
|---|---|
| MadsI | The following must hold:(1+R2)^2 x (1+R5)^5 = (1+R7)^7 - otherwise you could arbitrage. You can calculate R5 if you know R2 and R7 - remember to adjust for semiannual payments. |
| mtcfa | Wouldn't you need to go out one year further. The answer to this question appears to totally conflict with the formula on how to compute a forward rate. |
| mtcfa | Disregard my prvious comment. The text gives a clear explanation. |