Answer: 3.601%

Use the 300-day zero rate and the 300-day Eurodollar futures quote to infer the discount factor at 393 days, then solve for the 393-day continuous-compounding zero rate. ### 1) Convert the futures quote to an implied 3-month rate A quote of 94.500 implies a rate of: \[ R = 100 - 94.500 = 5.5\% \] ### 2) Compute the 300-day discount factor With continuous compounding: \[ D_{300} = e^{-0.03\times(300/365)} \] ### 3) Extend to 393 days The 300-day futures quote implies the forward rate for the next period. Using ACT/360 quarterly compounding, the growth factor over the period is approximately: \[ 1 + 0.055\times\frac{93}{360} \] So: \[ D_{393} = \frac{D_{300}}{1 + 0.055\times(93/360)} \] ### 4) Solve for the 393-day zero rate after calculating \(D_{393}\), the continuous-compounding zero rate is: \[ r_{393} = -\frac{\ln(D_{393})}{393/365} \] This gives approximately **3.601%**. Therefore, the nearest answer is **A**.

Author: Manit Arora