Question: Problem 4.4 Suppose that the risk-free zero interest rates with continuous compounding are as follows: Maturity Rate (months) (% per annum) 3 3.0 6 3.2

Problem 4.4 Suppose that the risk-free zero interest rates with continuous compounding are as follows: Maturity Rate (months) (% per annum) 3 3.0 6 3.2 9 3.4 12 S 15 3.6 18 3.7 Calculate forward interest rates for the second, third, fourth, fifth and sixth quarters. Workshop 2 Solutions This file contains references to pages in Ch. 4 for your review. It is recommended that you study the covered material in the chapter. Problem 4.4 The forward rates with continuous compounding are as follows, Qtr 6 4.2% For example: Using the rates given in the table, the forward rate between the 12t" and 15" month with continuous compounding is 4.0%, calculated as 3.6% X 13 3.5% X 15 0.25

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