CFA Practice Question

There are 490 practice questions for this study session.

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).

A. 1.784%
B. 3.506%
C. 5.352%
Correct Answer: B

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
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