1.The 6-month, 12-month. 18-month, and 24-month zero rates are 4%, 4.5%, 4.75%, and 5% with semiannual compounding, respectively.

(a)What is the value of an FRA that promises to pay you 6% (with semiannual payment) on a principal of $1 million for the six-month period starting in 18 months?

(b)If the six-month LIBOR rate were 6.5% with semiannual compounding in 18 months, what would be the payoff to the lender in Part (a)?