Question

Given the Term Structure below:

1 year = 3.9%

2 years = 4.1%

3 years = 5.6%

4 years = 6.5%

5 years = 7.1%

Based on the expectations hypothesis, what does the market expect the 1 year rate in 4 year to be?

Enter your answer as a percentage, without the percentage sign ('%'), and rounded to 1 decimal. Example: if your answer is 0.12356, that's equivalent to 12.4%, so enter 12.4

Answer 1

Please refer to the image below for the solution Do leave an upvote if you find this helpful. In case of any doubt please let me know in the comment section.

To calculate the un year rate 4 years, ila- we will use the following formula (4 years rate) x (1year rati (5 years rate 4 4 years later 5 (1.071) =C1.065) xn n=1.09534 n = 9.500 Enter answer as 19.5 CS Scanned with CamScanner