In order to estimate the forward rate for year six one needs
A) I, III
B) I, II, III
C) I, II
D) II, III
I.5-year zero
II.6-year zero
III.4-year zero

Question

Quizplus · Accepted Answer

To estimate the forward rate for year six, we need the interest rates for 4-year, 5-year, and 6-year zero-coupon bonds. Therefore, we need the information from 4-year, 5-year, and 6-year zero, which are given in options I, II, and III. Option B includes all three, but we only need three items, so option C, which includes I and II, is sufficient. Option A only includes two of the required zeros, so it is not enough to estimate the forward rate for year six.

In Order to Estimate the Forward Rate for Year Six