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:

Alteration

A change or modification, usually used to refer to a small change in structure, form, or quality.

Adjustment

A process of adapting or changing to fit new conditions or circumstances.

Saccades

Rapid, abrupt movements of the eyes that abruptly change the point of fixation.

Voluntary Fixation

A consciously controlled process of stabilizing focus on a particular stationary or moving object.