Question: Suppose that zero interest rates with continuous compounding are as follows: Maturity (months) Rate (% per annum) 3 7.0 6 7.2 9 7.4 12 7.5

Suppose that zero interest rates with continuous compounding are as follows: Maturity (months) Rate (% per annum) 3 7.0 6 7.2 9 7.4 12 7.5 15 7.6 18 7.7 Assume that a bank can borrow or lend at the rates above. What is the value of an FRA where it will earn 8.0% (per annum with quarterly compounding) for a three-month period starting in nine months on a principal of $3,500,000?

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