Suppose that zero interest rates with continuous compounding are as follows: Maturity (years) Rate (% per annum) 1 2.0 2 4.0 3 4.7 4 5.2 5 5.5 Calculate forward interest rates for the second, third, fourth, and fifth years. Draw zero
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Suppose that zero interest rates with continuous compounding are as follows:
|
Maturity (years) |
Rate (% per annum) |
|
1 |
2.0 |
|
2 |
4.0 |
|
3 |
4.7 |
|
4 |
5.2 |
|
5 |
5.5 |
Calculate forward interest rates for the second, third, fourth, and fifth years. Draw zero curve.
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- Suppose that zero interest rates with continuous compounding are as follows: Maturity(years) Rate (% per annum) 1 2.0 3.0 3.7 4.2 4.5 3 4 5 Calculate forward interest rates for the second, third, fourth, and fifth years.4.23. Suppose that risk-free zero interest rates with continuous compounding are as follows: Maturity (years) 1 2 3 4 Rate (% per annum) 2.0 3.0 3.7 4.2 4.5 Calculate forward interest rates for the second, third, fourth, and fifth years.For compounding more frequently than annual, the effective interest rate Select one: a. equal to the nominal rate b. depends on the amount borrowed c. is lower than the nominal rate d. is higher than the nominal rate
- For compounding more frequently than annual, the effective interest rate Select one: a. is higher than the nominal rate b. is lower than the nominal rate c. depends on the amount borrowed 18 d. equal to the nominal rateSuppose we observe the following rates: 1R1 = 10%, 1R2 = 12%. If the unbiased expectations theory of the term structure of interest rates holds, what is the 1-year interest rate expected one year from now, E(2r1)? (Do not round intermediate calculations. Round your answer to 2 decimal places.)Question 1. The continuous one-year, two-year, and three-year zero rates are 1.25%, 1.5%, 1.75% respectively. (a) Compute the two-year forward one-year libor rate. This is the forward libor rate for the period starting 2 years from now and ending 1 year after that. (Remember libor is a simple interest rate, it is not a compounded rate.) (b) Suppose the two-year forward two-year libor rate is 3%. What is the continuous four-year zero rate?
- (1) What is the value at the end of Year 3 of the following cash flow stream if the quoted interest rate is 10%, compounded semiannually? (2) What is the PV of the same stream? (3) Is the stream an annuity? (4) An important rule is that you should never show a nominal rate on a time line or use it in calculations unless what condition holds? (Hint: Think of annual compounding, when INOM = EFF% = IPER.) What would be wrong with your answers to parts (1) and (2) if you used the nominal rate of 10% rather than the periodic rate, INOM/2 = 10%/2 = 5%?Consider the following spot interest rates for maturities of one, two, three, and four years. r1 = 3.7% r3 = 4.9% What are the following forward rates, where fi₁, k refers to a forward rate for the period beginning in one year and extending for k years? (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) 11,1 f1,2 f1,3 r2 = 4.2% 4.70 % % % r4 = 5.7%An annual percentage rate (APR) is determined by annualizing the rate using compound interest. Select one: True False The more frequent the compounding, the higher the future value, other things equal. Select one: True False Which statement is NOT true?  a. Figure A correctly displays the relation between FVs of $1 investment at the interest rates 12.7% and 9.8%. b. Investment of $1 needs more than 7 years to double its value at the rate 9.8%, while only requiring less than 6 yeas to double at 12.7%. c. Figure B correctly displays the relation between PVs of $3 future value at the interest rates 12.7% and 9.8%. d. A discount factor for 5 years at 12.7% is lower than the discount factor for 5 years at 9.8%. After reading the fine print in your credit card agreement, you find that the "low" interest rate is actually an 17.05% APR, or 1.4208% per month. What is the effective annual rate? a. 18.45% b. 19.41% c. 18.82% d. 19.56% A zero-coupon bond is a bond that pay no interest…
- If the compounding frequency is monthly and the discount factor=0.62026, what is the value of the corresponding annual interest rate? What is the corresponding continuous compounding annual interest rate if the discount factor remains at 0.62026?Consider the following term structure of interest rates: Maturity Interest Rate 1-year 4.6% 2-year 5.3% 3-year 6.9% Compute the implied one-year forward rate at the beginning of year 3.Suppose that the zero rates with continuous compounding (per annum) for different maturities in the market are given as: 3-month = 7.6%, 6-month = 7.8%, 9-month = 8.0%, 12-month = 8.1%, 15-month = 8.2%, 18-month = 8.4%. Assume that a bank can borrow or lend at the zero rates in the market. What is the value of an FRA where it will earn 9.0% for a three-month period starting in one year on a principal of £1,000,000? The interest rate is expressed with quarterly compounding. Select one: a. £692.47 b. £902.58 c. £691.93 d. £901.05