Answer the following question
Suppose that OIS zero rates with annual compounding are as follows:
| Maturity (years) |
Rate (%. a.c.) |
| 1 |
2.5% |
| 2 |
2.7% |
| 3 |
2.9% |
| 4 |
3.0% |
The current one year LIBOR rate is 3% and the LIBOR forward rate for the 1- to 2- year period is 3.2%. In a market, a three year swap rate for a swap with annual payments is 3.2%.
a) Find the LIBOR forward rate for 2- to 3- year period
b) Value a three year swap where 4% is received and LIBOR is paid on a principal of $100 million c)if the LIBOR forward 3 to 4 year contract is 4.1% what should be the swap rate for a four year swap contract
c) If the LIBOR forward 3- to 4- year contract is 4.1% what should be the swap rate for a four year swap contract.