Use the following hypothetical market data to answer questions: Bond price Bond principal (date 0) 100...

  

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Use the following hypothetical market data to answer questions: Bond price Bond principal (date 0) 100 100 100 100 Maturity 0.50 1.00 1.50 2.00 Coupon rate (%) 0 0 8 12 94.9 90.0 96.0 101.6 Bond price (date 0 + 0.5 year) 93.5 88.5 94.0 99.0 Bond price (date 0 + 1 year) 92.5 87.0 93.0 97.5 1. Suppose that a fund manager manages bond portfolio and concerns over bond price decline in the future. To hedge interest rate risk during the period from year one to year two, he considers entering into an FRA. What is the market forward rate at the current time (date 0)? For hedging, should he be a fixed rate receiver or a fixed rate payer? Suppose the notional amount of the FRA is $1M. What is the value of the FRA at date 0? 2. Six month later (date 0 + 0.5 year), what is the value of the FRA? 3. One year later (date 0 + 1 year), what is the value of the FRA? Use the following hypothetical market data to answer questions: Bond price Bond principal (date 0) 100 100 100 100 Maturity 0.50 1.00 1.50 2.00 Coupon rate (%) 0 0 8 12 94.9 90.0 96.0 101.6 Bond price (date 0 + 0.5 year) 93.5 88.5 94.0 99.0 Bond price (date 0 + 1 year) 92.5 87.0 93.0 97.5 1. Suppose that a fund manager manages bond portfolio and concerns over bond price decline in the future. To hedge interest rate risk during the period from year one to year two, he considers entering into an FRA. What is the market forward rate at the current time (date 0)? For hedging, should he be a fixed rate receiver or a fixed rate payer? Suppose the notional amount of the FRA is $1M. What is the value of the FRA at date 0? 2. Six month later (date 0 + 0.5 year), what is the value of the FRA? 3. One year later (date 0 + 1 year), what is the value of the FRA?

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1 The market forward rate at the current time date 0 is 1 For hedging the fund manager should be a f... View the full answer