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

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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 £100,000, and the 1-year and 11-

year spot interest rates are 5 per cent and 9 per cent, 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 per cent. What is the new price of the forward contract?

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Corporate Finance

ISBN: 9780077173630

3rd Edition

Authors: David Hillier, Stephen A. Ross, Randolph W. Westerfield, Bradford D. Jordan, Jeffrey F. Jaffe

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Question Posted: Feb 22, 2024 03:02 AM

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

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Forward Price of the Contract a Initial Forward Price Using the formula for forward price of a zeroc...View the full answer

Corporate Finance

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