Based on the bond information provided in Table 1, calculate the missing zero rates Z₁, Z_1.5 and the 6-month forward rate R_1.0,1.5.

Table 1

Time to Maturity (years)	Coupon Rate (p.a.)	Face Value	Price	Annualised Zero Rate	6-month Forward Rates
0.5	0%	$100.00	$98.51	3.00%	-
1.0	0%	$100.00	$96.56	Z1	4.00%
1.5	6.00%	$100.00	$103.22	Z1.5	R1.0,1.5

Note that all zero and forward rates quoted are continuously compounded. Coupons are paid semi- annually.

(5 marks)

Suppose that zero rates with continuous compounding are as follows:

Maturity (Months)	Rate (% per annum)
3	7.2
6	7.3
9	7.5
12	7.5
15	7.6
18	7.7

What is the value of a FRA that enables the holder to earn 8% (quarterly compounding) for a three-month period starting in 9 months on a principal of $1,000,000? (NOTE: You can use either the Australian or American pricing convention).

(5 marks)