The Two-Year Zero Rate Is 6% and the Three Year

question 8

Multiple Choice

The two-year zero rate is 6% and the three year zero rate is 6.5%.What is the forward rate for the third year? All rates are continuously compounded.

• A) 6.75%
• B) 7.0%
• C) 7.25%
• D) 7.5%

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Definitions:

Equilibrium Price

The market price at which the quantity of a good or service demanded by consumers equals the quantity supplied by producers.

Equilibrium Quantity

The level of goods or services being both offered and requested at the market's equilibrium price.

Equilibrium Price

The market price at which the quantity of goods supplied is equal to the quantity of goods demanded, clearing the market.

Equilibrium Quantity

The quantity of goods or services that is supplied and demanded at the point where the supply and demand curves intersect.