Q4.1

[woodeasy]

if i solve it as:
exp(0.05*1/2)exp(x*1/2)=exp(0.1*1) => x=15.0%

is this a wrong answer? or just the difference between how the interest is compounded?

thanks!

[mj]

When people talk about forward rates they generally mean discrete compounding.

[woodeasy]

i c, thanks a lot!

When people talk about forward rates they generally mean discrete compounding.

[will0t5]

I solved this as:

(1.05)^0.5 * (1+x)^0.5 = 1.1
=> x=15.24%

I believe this is the method used in Heard on the Street (#3.3)