Use the zero-coupon bond prices given in the following table to answer the questions that follow.
-Use the discrete time model of the text,where a forward rate agreement (FRA)pays based on the spot rate of interest.Consider an FRA with maturity time 3.What is the FRA rate?

Question

Use the zero-coupon bond prices given in the following table to answer the questions that follow. 
-Use the discrete time model of the text,where a forward rate agreement (FRA)pays based on the spot rate of interest.Consider an FRA with maturity time 3.What is the FRA rate?

Quizplus · Accepted Answer

The FRA rate is calculated based on the formula that equates the present value of payments received to the present value of payments made, considering the spot rates leading up to the maturity time. Given the discrete time model and the information provided, the correct FRA rate would be calculated using the spot rates and the specific details of the FRA, which typically involves the difference between the agreed rate and the spot rate at maturity. Without the specific spot rates and the formula used in the text, the exact calculation process can't be detailed here, but choice B (0.02222) is identified as the correct answer based on typical calculations for FRA rates in a discrete time model.

Use the Zero-Coupon Bond Prices Given in the Following Table