Annual Interest Rate

[Kijal]

Hi everybody,

I hope that you can help me, cause I dont have the slightest clue with this problem:

Assume you observe the following term structure:

Maturity in years 1 2 3 4 5
Interest rate 2% 2.2% 2.3% 2.8% 3.2%

1) What is the annual interest rate you can lock in today for an investment from time 2 for 2
years?
2) The corresponding Swaprates should be higher than the Spotrates. (no but why?)

Thanks in advance for your help and regards

Julian

 

[Kijal]

Hey Denis,

its from an old exam which I got from a friend who attended the course two years ago. I want to solve this problem since its one of the few ones which I dont know how to tackle and I got no standard solution.

Can you help me at least with the right formula?

Thanks in advance

Julian

PS: To clarify: I am in my Master studies in Accounting and have a course in financial markets (urgh) with the exam upcoming the week after next week. Your help would be appreciated =)

 

[Kijal]

By chance I got the right formula. Its a simple forward rates problem and I got 3.4%, which should be correct. Maybe you could answer me the second question?