- 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**

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

B. the two-year and seven-year spot rates

C. spot rates at six-month intervals for the seven-year period

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.

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**User Contributed Comments**
3

User |
Comment |
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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. |