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

[MarianS]

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?

 

[tkhunny]

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

 

[MarianS]

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]

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]

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 [MATH]f_{a,b}[/MATH]
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.