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

Maturity (months)

Rate (% per annum)

3 8.0 6 8.2 9 8.4

12 8.5 15 8.6 18 8.7

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

4.6. Assume that a bank can borrow or lend at the rates in Problem 4.5. What is the value of an FRA where it will earn 9.5% for a 3-month period starting in 1 year on a principal of $1,000,000? The interest rate is expressed with quarterly compounding.