Help with Future Rates: Using unbiased expectations theory, calculate forward rates

MarianS

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Oct 8, 2019
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Hi. I need help with (b), 3f1 & 8f3. How do I find the future rate if I don't have the 4 year or 8 year rates?

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tkhunny

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You'll have to estimate it or assume it. Take your pick.
 

MarianS

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You'll have to estimate it or assume it. Take your pick.
Thank you! I thought there was another way that I was missing.
 

tkhunny

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Thank you! I thought there was another way that I was missing.
Well, there MAY be. If you have not discussed it in class, and there is nothing in your text book, I see no other choice.
 

JeffM

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It has been literally decades since I studied this, but I think that you are ignoring that you have the current 1-year rate. If I remember correctly, we can use that to interpolate. But I hesitate to say for sure because I am unsure of your notation.

Are you denoting as \(\displaystyle f_{a,b}\)

the imputed forward rate at the start of year a for b years or the imputed forward rate at the end of year a for b years.
 
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