The 2-year forward swap rate starting in 3 years is calculated using the formula for the forward rate, which is given by $3F2 = \frac{(Rs \times 5 - R3 \times 3)}{(5 - 3)}$. In this formula, $R3$ represents the 3-year zero rate, and $Rs$ represents the 5-year zero rate. According to the table provided in the file content, $R3 = 2.50\%$ and $Rs = 3.50\%$. Plugging these values into the formula yields:

$3F2 = \frac{(3.50\% \times 5 - 2.50\% \times 3)}{(5 - 3)} = \frac{(17.5\% - 7.5\%)}{2} = \frac{10\%}{2} = 5\%$.

Thus, the correct answer is C. 5.00%, which is the 2-year forward rate starting in year 3. The other options are incorrect for the following reasons:

• Option A (3.50%) is incorrect because it is the zero rate for a 5-year investment, not the forward rate.
• Option B (4.17%) is incorrect because it represents an annualized 3-year forward rate starting in 2 years, which is calculated using a misrepresented formula.
• Option D (6.09%) is incorrect because it is the result of applying an incorrect formula to determine the 2-year forward rate starting in year 3.