Currently the zero rate for 1 year is 6%, and the forward rates for the 2nd and 3rd years are 6.3% and 6.4% respectively.
a) What are the zero rates for 2 years and for 3 years respectively?
b) Suppose you entered into an FRA today, under which you will received a fixed rate for the third year on $1,000, what is this fixed rate if this FRA has zero value today for both parties.
c) Again, suppose you entered into an FRA today, under which you will receive a fixed rate 6.5% with annual compounding over $1,000 in 3rd year, what is the value of this FRA for you today?
