Question

Suppose that zero interest rates with continuous compounding are as follows: Maturity (months) Rate (% per...

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

Maturity (months)

Rate (% per annum)

3

3.0

6

3.2

9

3.4

12

3.5

15

3.6

18

3.7

Calculate forward interest rates for the second, third, fourth, fifth, and sixth quarters.

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Answer #1

Sol:

Maturity (months)

Rate (per annum)

Quarters

Forward interest rate

3

3.00%

6

3.20%

2nd quarter

3.40%

9

3.40%

3rd quarter

3.80%

12

3.50%

4th quarter

3.80%

15

3.60%

5th quarter

4.00%

18

3.70%

6th quarter

4.20%

Workings

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