Suppose that three months have passed, so it is August 15, 2000. You are given the...
Suppose that three months have passed, so it is August 15, 2000. You are given the following data:
What is the value of the forward agreement? Round to three digits after the decimal. Remember that the notional is $100
|
Maturity Date |
Z(0,T) |
|---|---|
|
Nov 2000 (3 months) |
0.9844 |
|
Feb 2001 (6 months) |
0.9690 |
|
May 2001 (9 months) |
0.9531 |
|
Aug 2001 (12 months) |
0.9386 |
Homework Answers
Answer-
Given
Date is August 15th 2000
Therefore
Z 90 = 0.9844
Z 180 = 0.9690
Z 270 = 0.9531
Z 360 = 0.9386
The quarterly fixed rate = 1 - Z 360 / ( Z 90 + Z 180 + Z 270 + Z 360)
The quarterly fixed rate = 1 - 0.9386 / ( 0.9844 + 0.9690 + 0.9531 + 0.9386 )
The quarterly fixed rate = 0.0614 / 3.8451
The quarterly fixed rate = 0.01597
The quarterly fixed rate = 1.597 %
Given
The notional principal = $ 100
The quarterly payments = $ 100 x 0.01597 = $ 1.597 [ Value of
Forward agreement quarterly]
The rate in annual terms = 1.597 % x (360 / 90) = 1.597
% x 4 = 6.388 % = 0.06388
The annual payments = $ 100 x 0.06388 = $ 6.388 [ Value of forward
agreement annually ]
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