Question: Problem 25-14 Forward Pricing You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The

Problem 25-14 Forward Pricing

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 $1,000, and the 1-year and 11-year spot interest rates are 6.9 percent and 8.9 percent, respectively.

a. What is the forward price of your contract? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

Forward price $

b.

Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by 3 percent. What is the new price of the forward contract? (Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

New forward price $

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