Question: Question 6 [6] The three-year zero rate is 8% and the four-year zero rate is 8.8% (both continuously compounded). 6.1 6.2 Determine the forward

Question 6 [6] The three-year zero rate is 8% and the four-year zero rate is 8.8% (both continuously compounded). 6.1 6.2 Determine the forward rate for the fourth year. Explain how a forward rate agreement (FRA) differs from a Eurodollar futures contract. Question 7 [6] Companies A and B have received the following interest rate offers on a $20 million, five- year loan: Company A Company B Fixed rate per annum 12.0% 13.4% Floating rate per annum LIBOR +0.2% LIBOR +0.7% Company A prefers a floating-rate loan and Company B prefers a fixed-rate loan. Design a swap that will earn a bank, acting as intermediary, 0.1% per annum, and that will benefit both companies equally. Diagrams are not required.

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