Term structure for a is

s1 = 2.50%; s2= 3.00 %; s3=3.50%

need help with b

3 Suppose the following bonds are trading in the market today (prices in ): - A zero coupon bond with face value 100 and maturity in one year trades at 97,53 - A coupon bond with face value 100, maturity in two years, and a coupon of 2% per annum paid annually trades at 98,01 - A coupon bond with face value 100, maturity in three years, and a coupon of 3% per annum paid annually trades at 98,48 a) Compute the current term structure; i.e. the continuously compounded spot rates for one, two and three years. b) Consider two parties who enter today a three year fixed-for-floating swap agreement where one-year LIBOR is exchanged for a fixed swap rate Rs with annual coupon payments (in total three); the notational principal is 1 million. Given the term structure in a), specify R, so that the agreement has zero value when entered; quote R, per annum using simple annual compounding. c) Suppose that one year ago, two parties set up a forward rate agreement (FRA) stipulating that 1 million were to be borrowed two years from then and returned three years from then; the borrowing rate quoted per annum using continuous compounding were set to 0.04. Find the value of this contract today seen from the borrowers perspective