Question

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

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Answer #1

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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Answer #2

IDk what ti do!


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