An investor enters into a forward contract to sell a bond in three months time at $100.

Question:

An investor enters into a forward contract to sell a bond in three months’ time at $100. After one month, the bond price is $101.50. Suppose the term-structure of interest rates is flat with interest rates equal to 3% for all maturities.

(a) Assuming no coupons are due on the bond over the next two months, what is now the forward price on the bond?

(b) What is the marked-to-market value of the investor’s short position?

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

Step by Step Answer:

Related Book For book-img-for-question

Derivatives Principles And Practice

ISBN: 9780078034732

2nd Edition

Authors: Rangarajan Sundaram

See More Books

Question Posted: Jan 10, 2024 01:00 AM

See More Questions

a. Example 8-1: Trambouze Reactions Wolfram 1. Fix k 2 at 0.015 and then describe how the selectivity varies with k 1 and k 3 . 2. Write a conclusion about your experiments. Polymath 3. What would...
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
If you wanted to double $1,000 in 10 years' time, what average rate of return would you require on your investment?
A chemist in need of 2, 2-dimethylpentanoic acid decided to synthesize some by reaction of 2chloro-2-methylpen Lane with NaCN, followed by hydrolysis of the product. After the reaction sequence was...
A gas mixture at 350 K and 300 kPa has the following volumetric analysis: 65 percent N2, 20 percent O2, and 15 percent CO2. Determine the mass fraction and partial pressure of each gas.
Event E: rolling a number divisible by 4 A probability experiment consists of rolling a 12-sided die, numbered 1 to 12. Find the probability of the event.
Obtain all data necessary from the worksheet prepared for Artisan Wines in Problem 12.6A at the end of Chapter 12. Then follow the instructions to complete this problem. In Problem 12.6A...
1. Analyze and explain the theoretical concepts related to the balance of payments of a country? - A country has exports of $20 billion, imports of $25 billion, net transfers from abroad of $1...
Three months ago, an investor entered into a six-month forward contract to sell a stock. The delivery price agreed to was $55. Today, the stock is trading at $45. Suppose the three-month interest...
A stock is trading at $24.50. The market consensus expectation is that it will pay a dividend of $0.50 in two months time. No other payouts are expected on the stock over the next three months....
On October 31, 2012, Henderson Companys total current assets were $65,000 and its total current liabilities were $20,000. On November 1, 2012, Henderson bought manufacturing equipment for $10,000...
Calculate the 2017-18 income tax liability of a non -Scottish taxpayer with income for the year as follows: (a) Business profits of 27,105 and bank interest of 720. (b) Business profits 44,150,...
Calculate the basic personal allowance available in 2017-18 to a taxpayer with adjusted net income of: (a) 90,000 (b) 108,000 (c) 130,000.
Mary's income for tax year 2017-18 consists of business profits of 26,920, dividends received of 124,460 and rents received of 3,750. Her personal allowance for the yearis nil. Calculate Mary's...
What are different binary tree traversal techniques?
What is AVL Tree?
Any given cost-information system is a function of a number of design choices. For product-costing purposes, one such design choice relates to how overhead, particularly fixed manufacturing overhead,...
Test your confidence in the following Project Decisions: SI. # Question 01 02 03 04 05 06 07 08 09 10 How many years did it take to construct the largest Egyptian Pyramid- Pyramid of Cheops? When was...
The following advertisement appeared in the Wall Street Journal on Thursday, February 9, 1995. ''There's nothing quite like the Seville Smart Lease. Seville SLS $0 down, $599 a monthj36 months" first...
After 15 Years of working for one employer, you transfer to a new job. During these years your employer contributed (that is, she diverted from your salary) $1500 each year to an account for your...
A finance company is using the following "Money by Mail" offer. Calculate the yearly nominal IRR received by the company if a customer chooses the loan of $2000 and accepts the credit insurance (Life...
Use the IS-LM diagram to explain the events associated with the 2001 recession in the United States. Make sure you include both the initial shock(s) and policy response(s) MAKE SURE YOU DRAW THE...
MS Project Planning: Plotting the project in MS Project. Creating a comprehensive task list with a minimum of 15 tasks. Identifying at least three milestones. Establishing relationships between...
Using the chosen "Nake Juice" brand, share how and who the company segments, targets and positions its brand. In your paper, use the Appendix to share examples of advertisements that support your...

An investor enters into a forward contract to sell a bond in three months time at $100.

Question:

Step by Step Answer:

The answers to the three parts are a The forward price at the ...View the full answer

Derivatives Principles And Practice

Students also viewed these Engineering questions