- CFA Exams
- CFA Level I Exam
- Study Session 14. Fixed Income (1)
- Reading 44. Introduction to Fixed-Income Valuation
- Subject 7. The Maturity Structure of Interest Rates

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**CFA Practice Question**

Using the rates of z

B. 3.506%

C. 5.352%

_{1}= 3.00%, f_{1,1}= 3.60%, f_{2,1}= 3.92%, f_{3,1}= 5.15%, compute the period three (1.5 years) spot rate. f_{n,m}refers to forward rate starting from period n for m period(s).A. 1.784%

B. 3.506%

C. 5.352%

Correct Answer: B

Annual spot rate = 1.753(2) = 3.506%

z

_{3}= [(1 +.015)(1+ .018) (1+ .0196)]^{1/3}-1 = [1.05352]^{1/3}-1 = 1.753 %Annual spot rate = 1.753(2) = 3.506%

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**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 |