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The fixed rate on a two-year libor based swap with annual payments is 5%. The Equivalent Annual Rate for a one year investment at the libor rate is 4%. a) Estimate the rate of return on a two-year zero coupon bond investment based on the libor curve. Give your answer as an annual rate with annual compounding. b) Derive the forward rate that an investor would expect to receive on a one-year investment made at the end of the first year. Quote the rate as an annual rate with annual compounding.

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