Answer: 6.2%

## Explanation To calculate the 1-year forward rate three years from today with continuous compounding, we use the formula: \[ F = \frac{R_4 \times T_4 - R_3 \times T_3}{T_4 - T_3} \] Where: - \( R_3 = 4.6\% \) (3-year zero rate) - \( R_4 = 5.0\% \) (4-year zero rate) - \( T_3 = 3 \) years - \( T_4 = 4 \) years Substituting the values: \[ F = \frac{0.05 \times 4 - 0.046 \times 3}{4 - 3} \] \[ F = \frac{0.20 - 0.138}{1} \] \[ F = \frac{0.062}{1} \] \[ F = 0.062 = 6.2\% \] Therefore, the correct answer is **6.2%** (Option A). ### Alternative Method Using Continuous Compounding Formula: For continuous compounding, the forward rate can also be calculated using: \[ e^{R_3 \times 3} \times e^{F \times 1} = e^{R_4 \times 4} \] \[ R_3 \times 3 + F \times 1 = R_4 \times 4 \] \[ 0.046 \times 3 + F = 0.05 \times 4 \] \[ 0.138 + F = 0.20 \] \[ F = 0.20 - 0.138 \] \[ F = 0.062 = 6.2\% \] Both methods confirm that the forward rate is **6.2%**.

Author: LeetQuiz .