Question: (b) Suppose you enter into a long position on a 1-year forward contract on a zero- coupon bond with a 5,000 face value maturing in

(b) Suppose you enter into a long position on a 1-year

(b) Suppose you enter into a long position on a 1-year forward contract on a zero- coupon bond with a 5,000 face value maturing in 3 years. The bond is currently trading at 4,200. What is the forward price? Suppose 6 months later the bond is trading at 4,250. Has your forward position gained or lost? What if the bond is trading at 4600? Assume a risk-free interest rate of 6% for all times. (Marks 25)

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