The three-year zero rate is 7% per annum and the four-year zero rate is 8% per...

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The three-year zero rate is 7% per annum and the four-year zero rate is 8% per...

The three-year zero rate is 7% per annum and the four-year zero rate is 8% per annum (both continuously compounded). What is the forward rate for the fourth year with continuous compounding? Answer as a percent with two decimal place accuracy.

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Answer 1

Answer #1

Fourth Year Rate = (1.08)⁴/(1.07)³ - 1

Fourth Year Rate = 11.06%

So,

Forward Rate for 1 year 3 years from now = 11.06%

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Answer 2

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