Q6. On May 15, 2000, a company is interested in purchasing $50 million worth of 1.5-year...

Transcribed Image Text:

Q6. On May 15, 2000, a company is interested in purchasing $50 million worth of 1.5-year zero coupon Treasuries with the proceeds of a sale of equipment to take place in 6 months. The company is interested in locking in the price of the Treasuries today through a forward contract. Table 5.10 Two Discount Curves May 15, 2000 November 15, 2000 Maturity Z(t,T) Maturity Z(t,T) 0.25 0.9847 0.25 0.9848 0.50 0.9679 0.50 0.9692 0.75 0.9537 0.75 0.9545 1.00 0.9351 1.00 0.9402 1.25 0.9189 1.25 0.9269 1.50 0.9031 1.50 0.9147 1.75 0.8882 1.75 0.9023 2.00 0.8742 2,00 0.8897 Data Source: CRSP. Use the data in Table 5.10 (note: the Maturity columns in the table should be interepreted as time to maturity, i.e. T - t) to answer the following: (a) What would the forward price be of the Treasuries? (b) How many bonds will the company purchase? Q6. On May 15, 2000, a company is interested in purchasing $50 million worth of 1.5-year zero coupon Treasuries with the proceeds of a sale of equipment to take place in 6 months. The company is interested in locking in the price of the Treasuries today through a forward contract. Table 5.10 Two Discount Curves May 15, 2000 November 15, 2000 Maturity Z(t,T) Maturity Z(t,T) 0.25 0.9847 0.25 0.9848 0.50 0.9679 0.50 0.9692 0.75 0.9537 0.75 0.9545 1.00 0.9351 1.00 0.9402 1.25 0.9189 1.25 0.9269 1.50 0.9031 1.50 0.9147 1.75 0.8882 1.75 0.9023 2.00 0.8742 2,00 0.8897 Data Source: CRSP. Use the data in Table 5.10 (note: the Maturity columns in the table should be interepreted as time to maturity, i.e. T - t) to answer the following: (a) What would the forward price be of the Treasuries? (b) How many bonds will the company purchase?