CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

The six-month Treasury bill spot rate is 4.0%, and the one-year Treasury bill spot rate is 5.0%. The implied six-month forward rate six months from now is (semi-annual compounding) ______.
A. 3.0%
B. 4.5%
C. 6.0%
Explanation: [(1 + 0.05/2)2/(1 + 0.04/2)] - 1 = 3%. 3% x 2 = 6%

User Contributed Comments 8

User Comment
shasha strictly say, 1f1 is A, 3.0%. 6% is the ANNUALIZED 1f1.
guna 1f1=(((1.05)**2)/
(1.04))-1
Millanna 1f1 = ((1+5%/2)^2)/(1+4%/2)-1=3%
3%*2 to annualize
miropower approximation could imply = (2*1y*5%/2)-(2*1/2y*4%/2) = 3 then annualize *2 = 6
CJPerugini Spot rates are always quoted on an annualized basis, even if it is for a 6 month spot rate.
CJPerugini Forwards rates as well.
stanziolap Why squared for (1+5%/2)
todolist @stanziolap: because 5.0% is annual rate but you want semi-annual compounding, so you divide it by 2 then, add 1 and square it.
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