36. The following market-based FRA rates are provided.
Period (months) | Forward Rates (%) |
0-6 | 3.00 |
6-12 | 4.00 |
12-18 | 5.00 |
18-24 | 6.00 |
Answer the following questions:
(a) Find the price of a two-year maturity security with a coupon of 4.5%.
(b) Find the price of a six-month bond future on this bond.
(c) What is the price of a twelve-month bond future on this bond.
(d) Find the durations of all the three instruments above.
(e) If we invest $100 in the two-year bond, then how many units of the two futures contracts should we buy such that we have equal numbers of units in each contract, and we optimize our duration-based hedge?
(f) After setting up the hedge, the next instant, the entire forward curve shifts up by 1% at all maturities. What is the change in the value of the hedged portfolio? Is it zero? If not, explain the sign of the change.
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.