Question

You observe than on today's yield curve, the one year rate is R1=6% and the two year rate is R2=6.5%. What is the one year forward rate one year from now? (tick correct one)
1) 7%
2) 6.5%
3) 6%
4) 5%
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Answer 1

Answer:

7%

Explanation:

$\frac{(1+R2)^{2}}{1+R1} -1$

= 7%