VIII. Quant Interview Questions · 14. November 2023

If the spot rate for the first six months is 5% and for the entire year it’s 10%, what’s the rate from six months to one year?

If the sopt rate for the first six months is 5% and for the entire year it’s 10%, what’s the rate from six months to one year?

A) 5% 📉

B) 7.5% 📈

C) 14.6% 🚀

Drop your answers below and make sure to justify your choice. Let’s get a vibrant discussion going and see who’s the true #QuantMaster here! 🧠✨

Engaging with your reasons helps us all learn and grow. Let’s elevate the conversation! 🌟

_________

The correct answer is:

C) 14.6% 🚀

Explanation:

First deanualize the 6 month spot rate, it gives:

2.5%

Now the 10% spot rate for 1 year should be equal to the 6 months spot rate multiplied by the forward rate in 6 month for a loan lasting 6 months

1.025*f(0,5;0,5)= 1.1

f(0,5;0,5)=7.31

Now let’s annualize this rate we get f(0,5;0,5)= 7.31*2= 14.6%

#QuantChallenge #ForwardRates #FinanceBasics #RateDynamics

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