Answer-first summary for fast verification
Answer: 95.1374
Use the continuously compounded zero rates to infer the 3-month forward LIBOR for the period from 9 months to 12 months: \[ f_{0.75,1.0}=\frac{r_2T_2-r_1T_1}{T_2-T_1}=\frac{(0.031)(1.0)-(0.025)(0.75)}{1.0-0.75}=0.049=4.90\% \] A Eurodollar futures quote is approximately: \[ \text{Futures price} = 100 - \text{implied rate} \approx 100 - 4.90 = 95.10 \] The nearest listed choice is **95.1374**. **Answer: A**
Author: Manit Arora
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Question 721.1. Suppose that the nine-month LIBOR interest rate is 2.50% per annum and the one-year LIBOR interest rate is 3.10% per annum, both expressed per annum with actual/365 and continuous compounding. Which of the following is nearest to the 3-month Eurodollar futures price quote for a contract maturing in nine months? (note: inspired by Hull’s EOC Problem 6.13)
A
95.1374
B
96.9000
C
97.5000
D
98.2693
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