Question: Suppose that the LIBOR zero rates with continuous compounding are as follows: Maturity (years from now) Rate (% per annum) 1 3.0 2 3.5 3

Suppose that the LIBOR zero rates with continuous compounding are as follows:

Maturity (years from now)

Rate (% per annum)

1

3.0

2

3.5

3

3.7

4

4.3

5

4.6

A. Convert the continuous compounded LIBOR forward rate for year 3 to an equivalent interest rate with annual compounding.

B. What is the value of the FRA contract today? Use the zero rates with continuous compounding in the table above.

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