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54

Which of following describes forward rates?

A.Interest rates implied by current zero rates for future periods of time

B.Interest rate earned on an investment that starts today and last for n-years in the future without coupons

C.The coupon rate that causes a bond price to equal its par (or principal) value

D.A single discount rate that gives the value of a bond equal to its market price when applied to all cash flows

A.Interest rates implied by current zero rates for future periods of time

B.Interest rate earned on an investment that starts today and last for n-years in the future without coupons

C.The coupon rate that causes a bond price to equal its par (or principal) value

D.A single discount rate that gives the value of a bond equal to its market price when applied to all cash flows

Answer: A

The forward rate is the interest rate implied by the current term structure for future periods of time. For example, earning the zero rate for one year and the forward rate for the period between one and two years gives the same result as earning the zero rate for two years.

The forward rate is the interest rate implied by the current term structure for future periods of time. For example, earning the zero rate for one year and the forward rate for the period between one and two years gives the same result as earning the zero rate for two years.

Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015