Question: Suppose that zero rates with continuous compounding are as follows: Maturity (Months) Rate (% per annum ) 3 7.2 6 7.3 9 7.5 12 7.5

Suppose that zero rates with continuous compounding are as follows:

Maturity (Months)	*Rate (% per annum)*
3	7.2
6	7.3
9	7.5
12	7.5
15	7.6
18	7.7

What is the value of a FRA that enables the holder to earn 8% (quarterly compounding) for a three-month period starting in 9 months on a principal of $1,000,000? (NOTE: You can use either the Australian or American pricing convention).

(5 marks)

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