Question: Suppose the current time is t=0 and the continuously compounded forward rate for the period [1,2] is given by f1,2=7.5% Consider the following two securities:

Suppose the current time is t=0 and the continuously compounded forward

Suppose the current time is t=0 and the continuously compounded forward rate for the period [1,2] is given by f1,2=7.5% Consider the following two securities: - a 2 year zero coupon bond (2YZ) which pays $1000 at time 2 and has a current price $869.36. - a 3 year annuity (3YA) which pays $1000 at times 1,2 , and 3 and has a current price $2,604.94. What is the continuously compounded forward rate for the period [2,3] ? 8.5% 7.0% 8.0% 7.5%

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