Question: Suppose that zero interest rates are per annum with continuous compounding are as follows: Maturity (years) Rate (% per annum) 1 2.5 2 3.0 3

Suppose that zero interest rates are per annum with continuous compounding are as follows:

Maturity (years) Rate (% per annum)

1 2.5

2 3.0

3 3.5

4 4.2

5 4.7

Calculate 1-year forward interest rates for the second (f1,2), third (f2,3), fourth (f3,4), and fifth (f4,5) years.

2.Use the rates in Problem 7 to value an FRA today as the borrower with 5% per annum for the third year on $1 million. (FRA is for the year starting at year 2 and ending at year 3)

I need help solving number 8. I got the answer to number 7.

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