4.00% with semi-annual compounding.

Q1: What are the equivalent rates with continuous compounding?

Q2: What is the forward rate for the six-month period beginning in 12 months (i.e., F12,18)? If

you use Eq 4.5 or 4.6, convert the forward rate into semi-annual compounding rate.

Q3: What is the value of an FRA that pays you the forward rate in Q2 and you pay a fixed rate

of 4.25% (compounded semi-annually) on a principal of $1 million for the six-month period

starting in 12 months?

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## This question was asked on Jan 18, 2013 and answered on Jan 20, 2013.

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