Question
This morning you agreed to buy a one-year Treasury bond in six months. The bond has a face value of $1,000. Use the spot interest
This morning you agreed to buy a one-year Treasury bond in six months. The bond has a face value of $1,000. Use the spot interest rates listed here to answer the following questions. Time EAR 6 months 3.68 % 12 months 4.12 18 months 4.80 24 months 5.52 a. What is the forward price of this contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Forward price $ b. Suppose shortly after you purchased the forward contract all rates increased by 40 basis points. For example, the six-month rate increased from 3.68 percent to 4.08 percent. What is the price of a forward contract otherwise identical to yours given these changes?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started