The 6-month, 12-month, 18-month, and 24-month zero rates are 2.50%, 3.00%, 3.50%, and 4.00% with semi-annual compounding.
1: What are the equivalent rates with continuous compounding?
2: What is the forward rate for the six-month period beginning in 12 months (i.e., F12, 18)? If you use Eq 4.5 or 4.6, convert the forward rate into semi-annual compounding rate.
3: What is the value of an FRA that pays you the forward rate in Q2 and you pay a fixed rate of 4.25% (compounded semi-annually) on a principal of $1 million for the six-month period starting in 12 months?

  • CreatedJuly 29, 2013
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