2. a. What is the 2-year forward price for a 1-year bond? b. What is the price...

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a. What is the 2-year forward price for a 1-year bond?

b. What is the price of a call option that expires in 2 years, giving you the right to pay $0.90 to buy a bond expiring in 1 year?

c. What is the price of an otherwise identical put?

d. What is the price of an interest rate caplet that provides an 11% (effective annual rate) cap on 1-year borrowing 2 years from now?

For the first three problems, use the following information:
Bond maturity (years) 1 2 3 4 Bond price 0.9259 0.8495 0.7722 0.7020 1-year forward price volatility 0.1000 0.1050 0.1100

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Derivatives Markets Pearson New International Edition

ISBN: 978-1292021256

3rd Edition

Authors: Robert L. Mcdonald

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Question Posted: Jul 22, 2024 09:00 AM

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2. a. What is the 2-year forward price for a 1-year bond? b. What is the price...

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Derivatives Markets Pearson New International Edition

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