Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. a. Suppose
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Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years.
a. Suppose that you buy today one 3-year maturity zero-coupon bond with face value $1,000.
How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero (specifically, what must be the total face value of those 5-year zeros)?
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 forward interest rate equals (1 + f4) × (1 + f5) −
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Related Book For
ISE Investments
ISBN: 9781266085963
13th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus
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