Question: Suppose the current time is t=0 and the continuously compounded forward rate for the period [1,2] is given by f1,2=7.5% Consider the following two securities:

Suppose the current time is t=0 and the continuously compounded forward

Suppose the current time is t=0 and the continuously compounded forward rate for the period [1,2] is given by f1,2=7.5% Consider the following two securities: - a 2 year zero coupon bond ( 2YZ ) which pays $1000 at time 2 and has a current price $869.36. - a 3 year annuity (3YA) which pays $1000 at times 1,2 , and 3 and has a current price $2,604.94. Consider a (long) forward (FOR) contract initiated at time 0 for the delivery at time 2 at a price F of a claim which pays $2,000 at time 3 . What is the delivery price F set at time 0

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