Question: Question # 7 7) Suppose that zero interest rates are per annum with continuous compounding are as follows: Maturity (years) Rate (% per annum) 2.5

Question # 7

Question # 7 7) Suppose that zero interest rates are per annum

7) Suppose that zero interest rates are per annum with continuous compounding are as follows: Maturity (years) Rate (% per annum) 2.5 3.0 3.5 4.2 4.7 2 4 5 Calculate 1-year forward interest rates for the second (fi2), third (f2a), fourth (fs,4), and fifth (fA.s) 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 S1 million. (FRA is for the year starting at year 2 and ending at year 3)

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