Question
Question 1: Use the zero-coupon bond prices for a specified instrument with par equal to 1.00 recorded in the following table for various maturities to
Question 1:
Use the zero-coupon bond prices for a specified instrument with par equal to 1.00 recorded in the following table for various maturities to answer parts (a)-(c).
Maturity Zero Price
3-months 0.9950
6-months 0.9861
9-months 0.9748
12-months 0.9622
15-months 0.9489
18-months 0.9361
21-months 0.9243
24-months 0.9121
a. Using the prices in the table above, calculate:
i) The 6-month forward price for a 6-month zero-coupon bond.
ii) The 9-month forward price for a 3-month zero-coupon bond.
iii) The 12-month forward price for a 12-month zero-coupon bond.
b. By using the answers to part (a) or otherwise, calculate:
i) The 6-month forward interest rate for a 6-month loan.
ii) The 9-month forward interest rate for a 3-month loan.
iii) The 12-month forward interest rate for a 12-month loan.
c. A bank offers one of its clients a 1212 FRA (Forward Rate Agreement) with a contract size of 50.00 million. Calculate the gain to the bank on the maturity date of the forward contract if the prevailing relevant annualised interest rate is 4.50%.
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