Exercise Solution 9.2

1. Applying linear interpolation, as describe in Section 2.4.1, we obtain

   [s1]

   
2. Again applying linear interpolation, as describe in Section 2.4.1, we obtain

   [s2]

   
3. See first spreadsheet for calculations. Applying quadratic interpolation, as describe in Section 2.4.2, we obtain

   [s3]

   

7. The SOLVER functionality of Microsoft Excel offers an implementation of Newton’s method. See third spreadsheet for computations. The solution is
   • strike: x = 1.5595 CAD/USD
   • notional = USD 98.78MM
   • maturity: y = 0.3399 years