Need help with Question 13 (a,b,c)

1. ($$$) Today is year 0. The following table provides information about current discount function and the current term structure. Continuously Annually Maturity Compounded Compounded Discount (in years) Yield Yield 10 8.1632% 8.5056% 0.921611 2.0 8.3194% 8.6753% 0.846717 3.0 8.4688% 8.8377% 0.775643 4.0 8.6111% 8.9927% 0.708614 5.0 8.7465% 9.1404% 0.645761 6.0 8.8750% 9.2807% 0.587135 7.0 8.9965% 9.4136% 0.532721 8.0 9.1111% 9.5391% 0.482445 9.0 9.2188% 9.6570% 0.436186 10.0 9.3194% 9.7675% 0.393787 11.0 9.4132% 9.8705% 0.355066 12.0 9.5000% 9.9659% 0.319819 Part a. Consider forward contract A which matures on year 2. On maturity, forward contract A delivers a zero coupon bond that matures on year 6. This zero coupon bond has a face value of $10,000. Given the term structure above, find the appropriate forward price for contract A. What is the dollar duration (or delta) and the gamma for such a forward contract from the perspective of the party who is "long" (that is, the party who accepts delivery of the zero coupon bond.) Chapter 13: Delta, Gamma, and There, Questions Page 661Part I]. Corn-rider a. forward contract I3 which matures on. year 4. De maturity, lorward con- tract 13 delivers a zero coupon bond that matures on year E. This zero coupon bond has a face value of $1U,D-EI_ Given the above lenn structure. the appropriate forward price for contract I]. is 53235.63: the dollar duration {or delta} of eontract I] is 11?.42T11 and the gamma of contract I3 is 11.?42'3. Now nd a combination of forward oontraets A and B such that the dollar duration (or the delta} is zero Part 1:. The net equity for your current balance sheet is $39,5T'l The dollar duration (or delta} and gamma for this not equity under your current balance sheet is 113131 and 4054?: respectively. You would like your net equity to behaye as if you had all your walth in a three year zero coupon bond. Using Forward Contracts A and B, nd the proper number of forward contracts to achieve a delta and a gamma for your not equity that is appropriate ifyou want your net equity to behaye as if it were inytsted in three year zero ooupon bonds. You should be able to nd the solution to this question solving only one equation and one unknown. lIZ'n'nly partial credit will be given if your solution iuyolym more work than this