Problem 15:18

The prices of zero-coupon bonds with various maturities are given in the following table.

Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1,000.

Maturity (Years)	Price
1	$990.66
2	900.89
3	839.92
4	779.60
5	695.66

a.	Suppose that you buy today one 3-year maturity zero-coupon bond. How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero? (Do not round intermediate calculations. Round your answer to 4 decimal places.)

5-year maturity zeros

b.	What are the cash flows on this strategy in each year? (Negative value should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.Omit the "$" sign in your response.)

Time	Cash Flow
0	$
3	$
5	$