Question
Suppose todays zero rates are as shown in the table below. To lock in lending rate between year 3 and 4, your action today will
Suppose today’s zero rates are as shown in the table below.
To lock in lending rate between year 3 and 4, your action today will be to _______ for ________ years, and ______ the same amount for ______ years.
a. Lend; 3 ; Borrow; 4
b. Borrow; 2; Lend; 3
c. Lend; 4 ; Borrow; 2
d. Borrow; 3; Lend; 5
e. None of the above
Zero rate for an n-year investment (% per annum) Year (n) 3.0 2 4.0 3 4.6 4 5.0 5 5.3
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Since we want to lock in the lending rate ie lock in the rate at which we would be able to lend for 1 year after 3 years For that purpose we would use ...
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Step: 2
Step: 3
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Fundamentals of Futures and Options Markets
Authors: John C. Hull
8th edition
978-1292155036, 1292155035, 132993341, 978-0132993340
