A bank offers a 3-month zero rate on investments of 3.1% and a forward rate of...

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A bank offers a 3-month zero rate on investments of 3.1% and a forward rate of...

A bank offers a 3-month zero rate on investments of 3.1% and a forward rate of 3.9% for 3-month investments starting 3 months from now. If you agree to these rates, what will an investment of 500 dollars be worth in 6 months? what is the 6-month zero rate that leads to the same rate of return?

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Zero rate Forward rate 500 3.10% 3.90% 4 Future value 508.79 Effective rate 3 10 3.52% 508.79 12 13 15 Investment Zero rate Forward rate 500 0.031 0.039 4 Future value -E3*(1+E4*3/12)*(1+E5*3/12) Effective rate 0.0351600000000009 10 E3 (1+E9*6/12) 12 13

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