7) Suppose that zero interest rates are per annum with continuous compounding are as follows: Maturity...
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7) Suppose that zero interest rates are per annum with continuous compounding are as follows: Maturity (years) Rate (% per annum) 1 2.5 2 3.0 3.5 4 4.2 4.7 Calculate 1-year forward interest rates for the second (fi,2), third (f2,3), fourth (f3,4), and fifth (f4,5) years. 8) Use the rates in Problem 7 to value an FRA today as the borrower with 5% per annum for the third year on $1 million. (FRA is for the year starting at year 2 and ending at year 3). 7) Suppose that zero interest rates are per annum with continuous compounding are as follows: Maturity (years) Rate (% per annum) 1 2.5 2 3.0 3.5 4 4.2 4.7 Calculate 1-year forward interest rates for the second (fi,2), third (f2,3), fourth (f3,4), and fifth (f4,5) years. 8) Use the rates in Problem 7 to value an FRA today as the borrower with 5% per annum for the third year on $1 million. (FRA is for the year starting at year 2 and ending at year 3).
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