CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

Given the spot rates r(1) = 5%, r(2) = 5.5%, and r(3) = 6%, calculate f(2, 1).

A. 6.5%
B. 6.8%
C. 7%
Correct Answer: C

[1 + r(3)]3 = [1 + r(2)]2 [1 + f(2,1)]

[1.06]3 = [1.055]2 [1 + f(2,1)]

f(2,1) = 7%

User Contributed Comments 2

User Comment
akirchner1 f(2,1) This is like saying 'what is is the one year rate beginning in two years.' A shortcut method is (6 x 3) - (5.5 x 2) = 7.
UcheSam @akirchner1, it does not work in all scenarios. Try out f(1,2).
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