1. Suppose that risk-free zero interest rates with continuous compounding are as follows:

Maturity (months) Rate (% per annum)

3 3.0

6 3.2

9 3.4

12 3.5

15 3.6

18 3.7

Calculate forward interest rates for the second, third, fourth, fifth, and sixth quarters.

2. The term structure of interest rates is upward-sloping. Put the following in order of magnitude:

a.) 5-year zero rate

b.) yield on a 5-year coupon-bearing bond

c.) forward rate corresponding to the period between 4.75 and 5 years in the future

What is the answer when the term structure of interest rates is downward sloping?