Assume that a bank can borrow or lend at the rates in the Table below. The...

Assume that a bank can borrow or lend at the rates in the Table below. The interest rate is expressed with quarterly compounding.

Qtr 2 8.4% Qtr 3 8.8% Qtr 4 8.8% Qtr 5 9.0% Qtr 6 9.2%

What is the forward rate with continuous compounding for a three-month period starting in one year on a principal of $1,000,000?

Expert Solution

forward rate starting in one year for three month period with quarterly compounding=((1+9%/4)^5/(1+8.8%/4)^4-1)*4=9.801%

rate compounded continuously=ln((1+9.801%/4)^4)=9.682831%

jeff jeffy answered 2 years ago

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Assume that a bank can borrow or lend at the rates in the Table below. The...

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