Question: Six-month LIBOR is 5%. LIBOR forward rates for the 6- to 12-month period and for the 12- to 18-month period are both 5.5%. Swap rates

Six-month LIBOR is 5%. LIBOR forward rates for the 6- to 12-month period and for the 12- to 18-month period are both 5.5%. Swap rates for 2- and 3-year semiannual pay swaps are 5.4% and 5.6%, respectively. Estimate the LIBOR forward rates for maturities of 18-month to 2 years, 2 to 2.5 years, and 2.5 to 3 years. Assume that the 2.5-year swap rate is the average of the 2- and 3-year swap rates and that OIS zero rates for all maturities are 4.5%. OIS rates are expressed with continuous compounding; all other rates are expressed with semiannual compounding.

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