Suppose you observe the following par coupon bond yields: 0.03000 (1-year), 0.03491 (2-year), 0.03974 (3-year), 0.04629 (4-year), 0.05174 (5-year). For each maturity year compute the zero-coupon bond prices, effective annual and continuously compounded zero-coupon bond yields, and the 1-year implied forward rate.
Answer to relevant QuestionsUsing the information in Table 7.1, a. Compute the implied forward rate from time 1 to time 3. b. Compute the implied forward price of a par 2-year coupon bond that will be issued at time 1. Using the zero-coupon bond prices and natural gas swap prices in Table 8.9, what are gas forward prices for each of the 8 quarters? Using the information in Table 8.9, verify that it is possible to derive the 8-quarter dollar interest swap rate from the 8-quarter euro interest swap rate by using equation (8.13). Given an 8-quarter oil swap price of $20.43, construct the implicit loan balance for each quarter over the life of the swap. In this problem we consider whether parity is violated by any of the option prices in Table 9.1. Suppose that you buy at the ask and sell at the bid, and that your continuously compounded lending rate is 0.3% and your ...
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