Yield to maturity - The interest rate which equates the present value of payments received from a credit a market instrument with its value today
Forward rate - The interest rate predicted by pure expectations theory of the term structure of interest rates to prevail in the future
Government bond - A government bond is a type of debt-based investment, where you loan money to a government in return for an agreed rate of interest. So you would expect full payment in 5 years.
Just seeing the structure of the calculation entirely explains the process.
Solve for r = "10 year forward rate starting after year 5".
[math](1 + 0.075)^{5} \cdot (1 + r)^{10} = (1 + 0.07)^{15}[/math]
Note: "beginning" in year 5 makes no sense. It starts at the end of year 5.
This site uses cookies to help personalise content, tailor your experience and to keep you logged in if you register.
By continuing to use this site, you are consenting to our use of cookies.