Question
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. |
Maturity (Years) | Price |
1 | $968.16 |
2 | 878.39 |
3 | 812.92 |
4 | 749.00 |
5 | 675.46 |
a. | Calculate the forward rate of interest for each year. (Round your answers to 2 decimal places. Omit the "%" sign in your response.) |
Maturity (years) | Forward Rate |
2 | % |
3 | % |
4 | % |
5 | % |
b. | How could you construct a 1-year forward loan beginning in year 3? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" & "%" signs in your response.) |
Face value | $ |
Rate of synthetic loan | % |
c. | How could you construct a 1-year forward loan beginning in year 4? (Do not round intermediate calculations. Round your answers to 2 decimal places. Omit the "$" & "%" signs in your response.) |
Face value | $ |
Rate of synthetic loan | % |
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