Explanation

Using the formula for continuously compounded forward rates:

$F_{1,2} = \frac{Z_2 T_2 - Z_1 T_1}{T_2 - T_1}$

Where:

• $Z_1$ = 3-year zero rate = 4.6% = 0.046
• $T_1$ = 3 years
• $Z_2$ = 4-year zero rate = 5.0% = 0.050
• $T_2$ = 4 years

Substituting the values:

$F_{3,4} = \frac{(0.050 \times 4) - (0.046 \times 3)}{4 - 3}$

$F_{3,4} = \frac{0.200 - 0.138}{1} = \frac{0.062}{1} = 0.062 = 6.2\%$

Therefore, the 1-year forward rate three years from today is 6.2%.

Answer: A