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# Forward Interest Rate

Calculate the 1.5-year theoretical spot rate if the 6-month spot rate is 1.75 percent and the 1-year spot rate is 1.95 percent. The 1.5-year note has a coupon of 3 percent and is selling for \$101.3518. (Quotes are in decimals, not 32nds.)

Then based on the data and your calculations, calculate the six-month forward rate 1.0 year from now (1ï?¦2).

#### Solution Preview

Calculate the 1.5-year theoretical spot rate if the 6-month spot rate is 1.75 percent and the 1-year spot rate is 1.95 percent. The 1.5-year note has a coupon of 3 percent and is selling for \$101.3518. (Quotes are in decimals, not 32nds.)

Then based on the data and your calculations, calculate the six-month forward rate 1.0 year from now .
Note: The quoted interest rates are annualized interest rates.
In the following calculations, we use annual compounding since interest on note is received every 6 months
6 month interest rate = annual interest rate /2
6 months = 1 time period, 1 ...

#### Solution Summary

Calculates the 1.5 year theoretical spot rates and the six month forward rate.

\$2.19