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The prices of zero-coupon bonds with various maturities are given in the following table. Suppose that you want to construct a 2-year maturity forward loan
The prices of zero-coupon bonds with various maturities are given in the following table. Suppose that you want to construct a 2-year maturity forward loan commencing in 3 years. The face value of each bond is $1,000. Maturity (Years) 1 Price $ 953.16 863.39 794.92 728.60 650.00 3 5 a. Suppose that you buy today one 3-year maturity 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.) 5-year maturity zeros 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.) Time Cash Flow 0 3 5
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