Estimate the forward libor interest rate

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1. Suppose that a Eurodollar futures quote is 88 for a contract maturing in 60 days. What is the LIBOR forward rate for the 60- to 150-day period? Ignore the difference between futures and forwards for the purposes of this question.

2. The 3-month Eurodollar futures price for a contract maturing in 6 years is quoted as 95.20. The standard deviation of the change in the short-term interest rate in 1 year is 1.1%. Estimate the forward LIBOR interest rate for the period between 6.00 and 6.25 years in the future.

3. Explain why the forward interest rate is less than the corresponding futures interest rate calculated from a Eurodollar futures contract.

Reference no: EM131236058

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