You have entered into a forward contract with the following parameters: Bond: 15 year, zero coupon...
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
Homework Answers
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
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You have entered into a forward contract with the following
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