Question

suppose that 0 interest rates with continuous compounding are as follows. calculate forward interest rates for the second third and fourth quarters.

month zero rate for an n month investment(%per year)

3 3.0

6 3.2

9 3.4

12 3.5

Answer 1

Detailed solution is shown below ask if any doubt

are calculated by Forward Rates using formula R2 Tz-R,T, Tz-TI for and Quarter R=3 R2 = 3.2 T = 3 T₂ -6 3.2 (6) -3 (3) RE > 6-3 R = 3.4.%. for ard Quarter R = 3.2 R₂ = -3.4 T, = 6 T2=9 Rp = 3.4 (9) - 3.2 (6) 9-6 RE= 3.8%

for quarter 3 3 R, = 3.4 R₂=3.5 T, = 9 T2 =12 RE - 3.5(12) - 3.429) 12-9 REZ 3.8%