Question: This morning you agreed to buy a one year Treasury bond

This morning you agreed to buy a one-year Treasury bond in six months. The bond has a face value of $1,000. Use the spot interest rates listed here to answer the following questions:
Time EAR
6 months ........ 3.61%
12 months ...... 4.05
18 months ...... 4.73
24 months ...... 5.42
a. What is the forward price of this contract?
b. Suppose shortly after you purchased the forward contract all rates increased by 30 basis points. For example, the six-month rate increased from 3.61 percent to 3.91 percent. What is the price of a forward contract otherwise identical to yours given these changes?


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  • CreatedAugust 28, 2014
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