Question

In: Finance

1a. Given the following info on the zero rates (continuous compounding), compute the one-year forward rates...

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.

  1. Given the following info, compute the zero rates (continuous compounding), the one-year forward rates (continuous compounding) and par rates (annual compounding). Coupons, if applicable, are paid once a year.

Maturity (years)

Coupon rate

bond price

Zero rates

Forward rates

par rates

1

0

97%

2

2%

102%

3

3%

103%

Solutions

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