I'm pretty sure the idea behind this question is that I'm given the current value of a 2 year ZCB and I am supposed to add the value of a zcb at the 2 year forward 3 year LIBOR rate and set that equal to the 5 year zcb value. I'm assuming these won't be equal but I'm not sure how to find the value of the zcb at the 2 year forward 3 year libor rate.

Thanks in advance!

Exercise 4 (2 marks). Suppose the current ZCB prices for maturity in two years and in five years are 0.8 and 0.7, respectively. Suppose the two-year forward three-year libor rate is 0.04. Determine if there is an arbitrage opportunity. If so, find an arbitrage portfolio. Make sure that you verify the portfolio is an arbitrage portfolio