Question
UESTION 11 Question 1.2 (10 marks) The 6-month, 12-month. 18-month,and 24-month zero rates are 4%pa, 4.5% pa, 4.75% pa, and 5% pa with semi-annual compounding.
UESTION 11 Question 1.2 (10 marks) The 6-month, 12-month. 18-month,and 24-month zero rates are 4%pa, 4.5% pa, 4.75% pa, and 5% pa with semi-annual compounding. What are the rates with continuous compounding? (4 marks) What is the forward rate for the six-month period beginning in 18 months? (2 marks) What is the current value of an FRA that promises to pay you 6% p.a. (compounded semi-annually) on a principal of $1 million for the six-month period starting in 18 months? (4 marks) Note that you need to use the rates calculated in part a) and part b) to estimate todays value of the FRA. For the toolbar, press ALT+F10 (PC) or ALT+FN+F10 (Mac).
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