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FinanceQ&A LibraryQuestion 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?Question

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?

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