In order to estimate the forward rate for year 1.5 one needs
A) I, III
B) I, II, III
C) I, II
D) II, III
I.1-year zero
II.1.5-year zero
III.2-year zero

Question

Quizplus · Accepted Answer

To estimate the forward rate for year 1.5, we need the interest rates for year zero (I) and 2-year zero (III), as these are the two reference points between which the forward rate will exist. The interest rate for 1.5-year zero (II) is not directly needed to estimate the forward rate for year 1.5, but it can be helpful for interpolating between the other two rates. Therefore, options A, B, and D are all incorrect. The correct answer is C, as it includes the essential interest rates needed to estimate the forward rate for year 1.5.

In Order to Estimate the Forward Rate for Year 1