You have entered into a forward contract with the following parameters:
Bond: | 15 year, zero coupon bond |
Issuance: | Will be issued in 1 year |
Face Value: | $1000 |
1 year spot rate: | 2 pct. |
10 year spot rate: | 4 pct. |
A) Forward price = $544.59
B) Forward price = $533.91
C) Forward price = $566.37
Forward price = $544.59 is the right answer when we calculate with
Forward rate=(1+rb)tb(1+ra)ta−1where:ra=The spot rate for the bond of term ta periodsrb=The spot rate for the bond with a shorter term of tb periods
You have entered into a forward contract with the following parameters: Bond: 15 year, zero coupon...
Suppose that you observe the following prices of three zero-coupon bonds issued by the government: YTM (spot rate) Price 985.22 1-year zero-coupon bond X 2-year zero-coupon bond Y 3-year zero-coupon bond Z Face value 1,000 1,000 1,000 P2 4% 901.94 Questions: A. (4 pts) Draw a yield curve based on the above three zero-coupon bonds. Comment on the shape. B. (6 pts) Calculate the implied 1-year forward interest rate, two years from now (i.e. f2.a)
Suppose that a one-year forward contract is entered into for a commodity X with a spot price at that time of 1000. Say after 3 months that the spot price for X has increased to 1030. If we assume a force of interest rate of 4%, find the value of the short position in the forward contract after 3 months.
14, A one-year zero coupon bond yields 3.0%. The two-and three-year zero-coupon bonds yield 4.0% and 5.0% respectively. a. The forward rate for a one-year loan beginning in two years is closest to? (10 points) b. The four-year spot rate is not given above; however, the forward price for a one-year zero-coupon bond beginning in three years is known to be 0.8400. The price today of a four-year zero-coupon bond is closest to? (5 points)
14, A one-year zero coupon...
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A three-year long forward contract is entered into when the spot price of an investment asset is $30 and the risk free rate for all maturities. (With continuous compounding is 10%. the asset provides an income of $2 at the end of the first year and $2 at the end of the second. a) what is the 3 year forward price? b) what is the initial value of the forward contract? c) Two and a half years later, the spot...
What is the price today (in dollars and cents) of a 15-year zero coupon bond if the required rate of return is 8.99%. The bond face value is $1000. $ Place your answer in dollars and cents. You should set your calculator for at least four decimal places of accuracy.
Question 1 - (25 points) (a) Consider a 2-year forward contract to buy a coupon-bearing bond that will mature 2 year from today. The current price of the bond is $102. Sup- pose that on that bond 4 coupon payments of $6 are expected after 6 months, 12 months, 18 months and 24-months. We assume that the 6-month, 12- month, 18-month and 24-month risk-free interest rates (continuously com- pounded) are, respectively, 1%, 1.3%, 1.6% and 1.9% per annum. Determine the...
9. The market prices of zero coupon bonds are as follows Time to maturi Price 97.08 93.35 88.90 83.86 4 (a) Compute the one-year forward rate and the two-year forward rate one-year from now [i.e. compute fi2 and fi 31. Express them in annualized form. 4% and 4.5% (b) Suppose you can enter a contract to borrow or lend at a one-year forward rate [ h+2 ] of 4.5%. You can take long or short positions in any of the...
Suppose that a 1-year zero-coupon bond with face value $100 currently sells at $88.99, while a 2-year zero sells at $76.99. You are considering the purchase of a 2-year-maturity bond making annual coupon payments. The face value of the bond is $100, and the coupon rate is 16% per year. a. What is the yield to maturity of the 2-year zero?(Do not round intermediate calculations. Round your answers to 3 decimal places.) Yield to Maturity 2-year zero 10 b. What...
4. You are given the following two bonds: (a) A one year zero coupon bond that matures for 10,000 with a price of 9600. (b) A two year bond with annual coupons of 2000 and a maturity value of 10,000. The price of the bond is 12,745. Using these bonds, determine the forward rate for time 1 to 2 which is f...