In: Finance
1a. Given the following info on the zero rates (continuous compounding), compute the one-year forward rates (continuous compounding) and par rates (annual compounding)
Maturity (years) |
Zero rates |
Forward rates |
par rates |
1 |
2% |
||
2 |
3% |
||
3 |
4% |
1b. If the fixed rate of a 12x24 FRA is currently 2% in the market, is there any arbitrage opportunity? If yes, show how it can be done.
Maturity (years) |
Coupon rate |
bond price |
Zero rates |
Forward rates |
par rates |
1 |
0 |
97% |
|||
2 |
2% |
102% |
|||
3 |
3% |
103% |