Question 1 Forward contracts a) Consider the results of Tender 1804 held on 24th June, 2022 for Government of Ghana Securities to be issued on 27 th June, 2022 are: 91-Day bill interest rate 25.6383% p.a.; 182-Day bill interest rate 26.4008% p.a.;

i. What is the implied 91-Day Treasury bill rate 91 days from June 24, 2022? ii. Explain what you have just calculated to a colleague of yours who knows about treasury bills, but not forward rates.

b) Recall the definition of zero-rate for maturity T as the continuously compounded rate of interest earned on an investment that provides a payoff only at time T. The Bank of Ghana does not report zero-rates but reports enough information for an observer to calculate zero-rates, knowing how treasury bills work. Calculate the zero rate for the 91-Day investment and for the 182-Day investment. You may assume GHS 100 face value.

c) An investor enters into a short cotton futures contract when the futures price was GHS 500 per kg. The contract is for the delivery of 10,000 kg of cotton. How much does she gain or lose if the cotton price at the maturity of the contract is (i) GHS 465 per kg; (ii) GHS 601 per kg?