Suppose that bond ABC is the underlying asset for a futures contract with settlement six months from
Question:
Answer the below questions.
(a) What is the theoretical futures price?
(b) What action would you take if the futures price is $83?
(c) What action would you take if the futures price is $76?
(d) Suppose that bond ABC pays interest quarterly instead of semiannually. If you know that you can reinvest any funds you receive three months from now at 1% for three months, what would the theoretical futures price for six-month settlement be?
(e) Suppose that the borrowing rate and lending rate are not equal. Instead, suppose that the current six-month borrowing rate is 8% and the six-month lending rate is 6%. What is the boundary for the theoretical futures price? Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Question Posted: