Problem 15-19 The prices of zero-coupon bonds with various maturities are given in the following table 25 points want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1,000 975.66 21-92 759.2 a. Suppose that you buy today one 3-year maturty zero-coupon bond How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero? (Round your answer to 4 decimal places.) O Answer is complete and correct. b. What are the cash flows on this strategy in each year? (Negative value should be indicated by a minus sign. Leave cell blank if there is no effect. Round your answers to 2 decimal places) O Answer is complete but not entirely correct. Time Cash Flow 1,000 00 123 0 c. What is the effective 2-year interest rate on the effective 3-year-ahead forward loan? (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. 13270% d. Confirm that the effective 2-year forward interest rate equals (1 + x-4-1. You therefore can nterpret the 2-year loan rate as a 2-year forward rate for the last two years. Alternatively, show that the effective 2- year forward rate equals (Round your answer to 2 decimal places) (a+ y) Answer is complete but not entirely correct 10 74 year loan rate Problem 15-19 The prices of zero-coupon bonds with various maturities are given in the following table 25 points want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1,000 975.66 21-92 759.2 a. Suppose that you buy today one 3-year maturty zero-coupon bond How many 5-year maturity zeros would you have to sell to make your initial cash flow equal to zero? (Round your answer to 4 decimal places.) O Answer is complete and correct. b. What are the cash flows on this strategy in each year? (Negative value should be indicated by a minus sign. Leave cell blank if there is no effect. Round your answers to 2 decimal places) O Answer is complete but not entirely correct. Time Cash Flow 1,000 00 123 0 c. What is the effective 2-year interest rate on the effective 3-year-ahead forward loan? (Round your answer to 2 decimal places.) Answer is complete but not entirely correct. 13270% d. Confirm that the effective 2-year forward interest rate equals (1 + x-4-1. You therefore can nterpret the 2-year loan rate as a 2-year forward rate for the last two years. Alternatively, show that the effective 2- year forward rate equals (Round your answer to 2 decimal places) (a+ y) Answer is complete but not entirely correct 10 74 year loan rate
