Question
You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the
You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the bond is $1,000and the 1-year and 11-year spot interest rates are 6.3 percent and 8.3 percent, respectively.
You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the bond is $1,000and the 1-year and 11-year spot interest rates are 6.3 percent and 8.3 percent, respectively. |
a. | What is the forward price of your contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
b. | Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by 1.5 percent. What is the new price of the forward contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) |
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
Personal Finance
Authors: Jeff Madura, Hardeep Singh Gill
3rd Canadian Edition
978-0133035575, 133035573, 978-0133970524, 133970523, 978-0134040042
