The two-year zero rate is 6% and the three year zero rate is 6.5%.What is the forward rate for the third year? All rates are continuously compounded.
A) 6.75%
B) 7.0%
C) 7.25%
D) 7.5%

Name: The two-year zero rate is 6% and the three year zero rate is 6.5%.What is the forward rate for the third year? All rates are continuously compounded. A) 6.75% B) 7.0% C) 7.25% D) 7.5%
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Question

Quizplus · Accepted Answer

The forward rate for the third year is (3×0.065−2×0.06)/(3−2)= 0.075 or 7.5%.

The Two-Year Zero Rate Is 6% and the Three Year