Thee 3-month zero rate is 6% and the 9-month zero rate is 6.5%. What is the forward rate for the period between 3month and 9month?
*Note : all rates here are continuously compounded.
Choose from the following options.
7.25%
7.50%
7.00%
6.75%
Forward Rate for 6 months, 3 months from now = 9-month rate / 3-month rate
e[r * (6/12)] = e[0.065 * (9/12)] / e[0.06 * (3/12)]
e[r * 0.5] = e[0.04875] / e[0.015]
e[r * 0.5] = 1.05 / 1.015
e[r * 0.5] = 1.0343
[r * 0.5] * log(e) = log(1.0343)
[r * 0.5] * 1 = 0.03375
r = 0.03375 / 0.5 = 0.0675, or 6.75%
Hence, 4th Option is correct.
Thee 3-month zero rate is 6% and the 9-month zero rate is 6.5%. What is the forward rate for the period between 3month a...
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