FRM Part I · FRM Exam Part I · Swaps
Two-year and one-year discount factors are 0.9400 and 0.9700. What is the implied 1-year forward rate, annually compounded, starting in one year (rounded to two decimals)?
The implied one-year forward rate is about 3.19%. It equals the one-year discount factor divided by the two-year discount factor minus one, so 0.9700 divided by 0.9400 is 1.0319, giving a forward rate of roughly 3.19%.
- A3.19%Correct
- B3.00%
- C2.50%
- D6.38%
Explanation
Forward = d1/d2 - 1 = 0.9700/0.9400 - 1 = 0.031915, about 3.19%. The 3.00% figure is simply an unrelated average-style guess, and 6.38% doubles the result.
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