Question: Suppose that zero interest rates with continuous compounding are as follows: Maturity (months) 3 Rate (% per annum) 6.0 6 9 12 15 18 6.2

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

Suppose that zero interest rates with continuous compounding are as follows: Maturity (months) 3 Rate (% per annum) 6.0 6 9 12 15 18 6.2 6.4 6.5 6.6 6.7 Assume that a bank can borrow or lend at the rates above. What is the value of an FRA where it will earn 7.4% (per annum with quarterly compounding) for a three-month period starting in fifteen months on a principal of $2,500,000

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