This morning you agreed to buy a one-year Treasury bond in six months. The bond has a
Question:
This morning you agreed to buy a one-year Treasury bond in six months. The bond has a face value of $1,000. Use the spot interest rates listed here to answer the following questions:
Time EAR
6 months ........3.61%
12 months ......4.05
18 months ......4.73
24 months ......5.42
a. What is the forward price of this contract?
b. Suppose shortly after you purchased the forward contract all rates increased by 30 basis points. For example, the six-month rate increased from 3.61 percent to 3.91 percent. What is the price of a forward contract otherwise identical to yours given these changes?
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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a The forward price of an asset with no carrying costs or convenience value is Forward price S 0 1 R ...View the full answer
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Related Book For 
Corporate Finance
ISBN: 978-0077861759
10th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe
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