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01). a- The zero rates for a one-year and two-year investment are 3.0% and 4.0% respectively. The one year, one year forward rate is closest

01). a- The zero rates for a one-year and two-year investment are 3.0% and 4.0% respectively. The one year, one year forward rate is closest to:

  1. 3.0%
  2. 4.0%
  3. 5.0%
  4. 6.0%

b- One year ago, a risk manager entered a $50 million 5-year interest rate swap as the fixed rate payer. The fixed rate was 2.875%. 4-year interest rates are now 3.675% and the swap has an estimated modified duration of 3.65. The fair value of the swap from the risk managers perspective is closest to:

  1. Loss of $1,825,000
  2. Gain of $1,460,000
  3. Loss of $1,437,500
  4. Gain of $1,875,000

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