1. An interest rate is quoted as 5% per annum with semiannual compounding. What is the equivalent rate with (a) annual compounding, (b) monthly compounding, and (c) continuous compounding.
2. The 6-month, 12-month, 18-month, and 24-month zero rates are 4%, 4.5%, 4.75%, and 5%, with semiannual compounding.
(a) What are the rates with continuous compounding?
(b) What is the forward rate for the 6-month period beginning in 18 months?
(c) What is the value of an FRA that promises to pay you 6% (compounded semiannually) on a principal of $1 million for the 6-month period starting in 18 months?