You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued

Question:

You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the bond is $1,000 and the 1-year and 11-year spot interest rates are 6 percent and 8 percent, respectively.

a. What is the forward price of your contract?

b. Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by 2 percent.

What is the new price of the forward contract?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Corporate Finance

ISBN: 9781265533199

13th International Edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe

Question Posted: