Question

Suppose current zero rates are as follows: 1-year: 3.25%; 2-year: 3.30%; 3-year: 3.47%; 4-year: 3.65%; 5-year:...

  1. Suppose current zero rates are as follows:

1-year: 3.25%; 2-year: 3.30%; 3-year: 3.47%; 4-year: 3.65%; 5-year: 3.75%

all continuously compounded.

Compute the following forward rates:

(a) one-year forward rate three years from now;

(b) three year forward rate one year from now.

Answer:

  1. 4.19
  2. 3.78
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