HW: Ch4 Due date: September 25, 2020 Use the following hypothetical market data to answer questions: Maturity Bond principal Coupon rate Bond price (date 0) (%) Bond price (date 0 + 0.5 year) 93.5 88.5 94.0 0.50 0 100 100 100 94.9 90.0 Bond price (date 0 + 1 year) 92.5 87.0 93.0 97.5 1.00 1.50 8 96.0 101.6 100 2.00 12 99.0 1. Suppose that a fund manager manages bond portfolio and concerns over bond price decline in the future. To hedge interest rate risk during the period from year one to year two, he considers entering into an FRA. What is the market forward rate at the current time (date 0)? For hedging, should he be a fixed rate receiver or a fixed rate payer? Suppose the notional amount of the FRA is $1M. What is the value of the FRA at date 0? 2. Six month later (date 0 + 0.5 year), what is the value of the FRA? 3. One year later (date 0 + 1 year), what is the value of the FRA? HW: Ch4 Due date: September 25, 2020 Use the following hypothetical market data to answer questions: Maturity Bond principal Coupon rate Bond price (date 0) (%) Bond price (date 0 + 0.5 year) 93.5 88.5 94.0 0.50 0 100 100 100 94.9 90.0 Bond price (date 0 + 1 year) 92.5 87.0 93.0 97.5 1.00 1.50 8 96.0 101.6 100 2.00 12 99.0 1. Suppose that a fund manager manages bond portfolio and concerns over bond price decline in the future. To hedge interest rate risk during the period from year one to year two, he considers entering into an FRA. What is the market forward rate at the current time (date 0)? For hedging, should he be a fixed rate receiver or a fixed rate payer? Suppose the notional amount of the FRA is $1M. What is the value of the FRA at date 0? 2. Six month later (date 0 + 0.5 year), what is the value of the FRA? 3. One year later (date 0 + 1 year), what is the value of the FRA