a) Based on the bond information provided in Table 1, calculate the missing zero rate Z_1.5 and the 6-month forward rates R_0.5,1 and R_1.0,1.5.

Table 1

Time to Maturity (years)	Coupon Rate (p.a.)	Face Value	Price	Annualised Zero Rate	6-month Forward Rates
0.5	0%	$100.00	$98.02	4.00%	-
1.0	0%	$100.00	$95.89	4.20%	R0.5,1
1.5	4.00%	$100.00	$99.36	Z1.5	R1.0,1.5

Note that all zero and forward rates quoted are continuously compounded. Coupons are paid semi- annually.

(5 marks)

b) From the pay fixed side, value the swap based on the following information:

• Notional Value = $100,000,000;
• Time to Maturity = 1.75 years (i.e. - 21 months);
• Fixed Rate = 3.00% p.a. and is paid semi-annually;
• Floating Rate is the six-month BBSW which was 3.5% p.a. continuous compounding 3 months ago;
• The 6-month, 12-month and 18-month BBSW rates are 3.5%, 3.6% and 3.8%, respectively. These rates are nominal annual with continuous compounding.