Question
Use the Treasury Bound information in the table to answer following questions: a. Determine continuously zero rates for 6 months, 1 year and 1.5 years.
Use the Treasury Bound information in the table to answer following questions:
a. Determine continuously zero rates for 6 months, 1 year and 1.5 years.
b. If the continuously zero rate for year 1.5 moves lower, would that impact the value of a forward rate agreement between year 1 and 1.5? Would a lowerzero rate benifit the fixed or the floating rate player in a Forward Rate Agreement? Explain why.
| Bound Number | Principal | Time to Maturity (years) | Annual Coupon | Bound Price |
|---|---|---|---|---|
| 1 | 100 | 0.5 | 0 | 97.5 |
| 2 | 100 | 1.0 | 5% | 93 |
| 3 | 100 | 1.5 | 6% | 87 |
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Risk Management And Simulation
Authors: Aparna Gupta
1st Edition
1439835942,1439835950
