CFA Practice Question

There are 490 practice questions for this study session.

CFA Practice Question

The minimum data required to calculate the implied forward rate for five years beginning two years from now would be ______.

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.
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