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Term structure of interest rates and swap valuation Suppose the current term structure of interest rates, assuming annual compounding, is as follows: s 1 s

Term structure of interest rates and swap valuation

Suppose the current term structure of interest rates, assuming annual compounding, is as follows:

s

1

s

2

s

3

s

4

s

5

s

6

7.0%

7.3%

7.7%

8.1%

8.4%

8.8%

What is the discount rate

d(0,4)

? (Recall that interest rates are always quoted on an annual basis unless

stated otherwise.)

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