Suppose today’s zero rates are as shown in the table below.

To lock in lending rate between year 3 and 4, your action today will be to _______ for ________ years, and ______ the same amount for ______ years.

a. Lend; 3 ; Borrow; 4

b. Borrow; 2; Lend; 3

c. Lend; 4 ; Borrow; 2

d. Borrow; 3; Lend; 5

e. None of the above

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Zero rate for an n-year investment (% per annum) Year (n) 3.0 2 4.0 3 4.6 4 5.0 5 5.3 Zero rate for an n-year investment (% per annum) Year (n) 3.0 2 4.0 3 4.6 4 5.0 5 5.3

Answer rating: 100% (QA)

Since we want to lock in the lending rate ie lock in the rate at which we would be able to lend for 1 year after 3 years For that purpose we would use ... View the full answer