Continue to use the data in the preceding problem. Suppose that you want to construct a 2-year

Question:

Continue to use the data in the preceding problem. Suppose that you want to construct a 2-year forward loan commencing in 3 years.
a. Suppose that you buy today one 3-year zero-coupon bond. How many 5-year zeros would you have to sell to make your initial cash flow equal to zero?
b. What are the cash flows on this strategy in each year?
c. What is the effective 2-year interest rate on the effective 3-year-ahead forward loan?
d. Confirm that the effective 2-year interest rate equals (1 + f4) 3 (1 + f5) -1. You therefore can interpret the 2-year loan rate as a 2-year forward rate for the last 2 years. Alternatively, show that the effective 2-year forward rate equals
(11y5)5/(11y3)3 -1

Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...