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6. Money moves from time to to time T1 with rate 0.08, from T1 to T2 at rate 0.09, and from TO to T3 at rate 0.25. What is th
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Answer #1

r(T0 - T3) = [(1 + r(T0 - T1)) * (1 + r(T1 - T2)) * (1 + r(T2 - T3))]1/3 - 1

0.25 = [(1 + 0.08) * (1 + 0.09) * (1 + r(T2 - T3))]1/3 - 1

(1 + 0.25)3 = [1.08 * 1.09 * (1 + r(T2 - T3))]

1.953125 = 1.1772 * (1 + r(T2 - T3))

1 + r(T2 - T3) = 1.953125 / 1.1772

r(T2 - T3) = 1.6591 - 1

r(T2 - T3) = 0.6591, or 65.91%

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