Question: The one-year LIBOR rate is 10% with annual compounding. A bank trades swaps where a fixed rate of interest is exchanged for 12-month LIBOR with

The one-year LIBOR rate is 10% with annual compounding. A bank trades swaps where a fixed rate of interest is exchanged for 12-month LIBOR with payments being exchanged annually. Two- and three-year swap rates (expressed with annual compounding) are 11% and 12% per annum. Estimate the two- and three-year LIBOR zero rates when LIBOR discounting is used.

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