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1 year interest rate is 1.2%, 2 year interest rate is 1.5%, and 3 year interest...

1 year interest rate is 1.2%, 2 year interest rate is 1.5%, and 3 year interest rate is 2%. What is the 1 year forward rate starting from the third year?

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Answer #1

One-year interest rate:

= ((1+2%)^3)/(1+1.5%)^2-1

= 3.00%

Hence, 1 year interest rate in 3rd year is 3.00%

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