Q5 Suppose that 3-month, 6-month, 12-month, and 2-year OIS rates are 4.0%, 4.8%, 5.5%, and 6.4%, respectively. The 3-month, 6-month and 12-month OISs involve a single exchange at maturity; the 2-year OISs involve quarterly exchanges. The compounding frequencies used for expressing the rates corre- spond to the frequency of exchanges. a) Calculate the OIS zero rates using continuous compounding. Interpolate linearly between continuously compounded rates to determine rates be- tween 6 months and 12 months, and between 12 months and 2 years. flise b) What are the forward rates for the periods: 6 months to 12 months, 12 months to 24 months? c) What is two-year par yield? Assume coupons are paid twice in a year. d) Suppose the risk-free rates are as you calculated in a). If we know the cur- rent forward LIBOR rate for the six-month period beginning in 6 months is 6.7% (semiannually compounded), what is the value of an FRA where the holder pays 6.5% (semiannually compounded) for that six-month pe riod in 6 months? The principal is $100 million. Q5 Suppose that 3-month, 6-month, 12-month, and 2-year OIS rates are 4.0%, 4.8%, 5.5%, and 6.4%, respectively. The 3-month, 6-month and 12-month OISs involve a single exchange at maturity; the 2-year OISs involve quarterly exchanges. The compounding frequencies used for expressing the rates corre- spond to the frequency of exchanges. a) Calculate the OIS zero rates using continuous compounding. Interpolate linearly between continuously compounded rates to determine rates be- tween 6 months and 12 months, and between 12 months and 2 years. flise b) What are the forward rates for the periods: 6 months to 12 months, 12 months to 24 months? c) What is two-year par yield? Assume coupons are paid twice in a year. d) Suppose the risk-free rates are as you calculated in a). If we know the cur- rent forward LIBOR rate for the six-month period beginning in 6 months is 6.7% (semiannually compounded), what is the value of an FRA where the holder pays 6.5% (semiannually compounded) for that six-month pe riod in 6 months? The principal is $100 million