Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA AFM Exams › interpolation of forward rates(Q. Lammer plc)
- This topic has 9 replies, 5 voices, and was last updated 6 years ago by John Moffat.
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- June 2, 2011 at 10:51 pm #48868
we need to calculation a forward rate for 5m but only 3m and 1yr forward rates are given.how should we go about calculating the correct rate.
June 6, 2011 at 11:25 am #82890As an estimate, you take the 3m rate and then add 2/9 times the difference between the 3m and 1 year rates. (2 because 5m-3m=2m; 9 because 1yr – 3m = 9m)
June 6, 2011 at 3:19 pm #82891thanks john
May 27, 2013 at 5:11 pm #127368Why then in the exam kit answers does it take the 3month forward rate x 7/9 and the 1 year forward rate x 2/9??
May 28, 2013 at 8:44 am #127425You are welcome 🙂
November 27, 2013 at 9:12 am #148019AnonymousInactive- Topics: 0
- Replies: 7
- ☆
Sir can u plz correct me where I am going wrong??!!
3mnths= 1.9066 – 1.9120
1yr= 1.8901 – 1.8945as per ur explanation.
1.9066+ (2/9 * (1.9066-1.8901)) = 1.9103
actual ans – 1.9029
🙁
November 28, 2013 at 9:35 am #148211David: I have no idea which exam kit you are referring to.
November 28, 2013 at 9:38 am #148212Mrsarij: Why are you adding to 1.9066?
The 1 year forward rate is lower than the 3 month forward rate, and so the 5 month forward rate will be lower as well!
You should be subtracting from 1.9066 and then you will get 1.9029
February 11, 2018 at 9:20 am #436357Amazing 🙂 I always find the answers to the questions !!!!!!!
February 11, 2018 at 10:03 am #436376Great 🙂
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