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Medium · Fixed Income & Interest Rate Models · Numerical · ~5 min · #34

The One-Year Rate, One Year Forward

The one-year spot rate is 3% and the two-year spot rate is 4%, both with annual compounding. What one-year rate, starting one year from now, can be locked in today? Give your answer as a decimal (e.g. 0.0525) or a percentage (e.g. 5.25%).

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Forward ratesNo-arbitrage term structure

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