Consider a 1-year zero-coupon bond with $1,000 face value. Assume today's 6-monthforward rate is 6% and in
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Consider a 1-year zero-coupon bond with $1,000 face value. Assume today's 6-monthforward rate is 6% and in six months the new 6-month forward rate can be either 5% or 7%. Assume also that the current price of the 6-month call option with a strike price of $970 on this bond is $2.17. Find the 1-year spot rate today. Keep at least 4 decimal digits.
Related Book For
Financial Management Theory and Practice
ISBN: 978-0176517304
2nd Canadian edition
Authors: Eugene Brigham, Michael Ehrhardt, Jerome Gessaroli, Richard Nason
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