You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued

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You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the bond is $1,000 and the 1-year and 11-year spot interest rates are 6 percent and 8 percent, respectively.

a. What is the forward price of your contract?

b. Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by 2 percent.

What is the new price of the forward contract?

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Corporate Finance

ISBN: 9781265533199

13th International Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

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Question Posted: Nov 22, 2023 03:23 AM

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You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued

Question:

Step by Step Answer:

To calculate the forward price of the contract we need to use the formula Forward Price Spot Price 1 ...View the full answer

Corporate Finance

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