a. What is the forward price of your contract? (Do not round intermediate calculation and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by percent hat is the new price of the forward contract? (Do not round intermediat calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. What is the forward price of your contract? (Do not round intermediate calculation and round your answer to 2 decimal places, e.g., 32.16.) b. Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by percent hat is the new price of the forward contract? (Do not round intermediat calculations and round your answer to 2 decimal places, e.g., 32.16.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![**Forward Contract Pricing: Educational Exercise**
In this exercise, we explore determining the forward price of a financial contract to buy a 10-year, zero-coupon bond that will be issued in one year. Key details include:
- **Face Value of the Bond:** $1,000
- **Spot Interest Rates:**
- 1-year rate: 6%
- 11-year rate: 8%
**Questions:**
a. **Calculate the Forward Price of Your Contract**
- Remember to avoid rounding during intermediate steps. Present the final result rounded to two decimal places (e.g., 32.16).
b. **Calculate the New Forward Price**
- Suppose both the 1-year and 11-year spot rates unexpectedly decrease by 2 percent. Determine the new forward price of the contract.
- Again, do not round intermediate calculations, but present the final result rounded to two decimal places (e.g., 32.16).
**Inputs:**
- a. Forward price: [ __ ]
- b. New forward price: [ __ ]
This tutorial is designed to enhance your understanding of forward contracts and the impact of interest rate changes.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbb2bb150-27e0-4444-911e-e3bbf21f6f0c%2F35b00c1d-4ae4-4957-8b02-c01e2d64938a%2Fxmk1m6b_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Forward Contract Pricing: Educational Exercise**
In this exercise, we explore determining the forward price of a financial contract to buy a 10-year, zero-coupon bond that will be issued in one year. Key details include:
- **Face Value of the Bond:** $1,000
- **Spot Interest Rates:**
- 1-year rate: 6%
- 11-year rate: 8%
**Questions:**
a. **Calculate the Forward Price of Your Contract**
- Remember to avoid rounding during intermediate steps. Present the final result rounded to two decimal places (e.g., 32.16).
b. **Calculate the New Forward Price**
- Suppose both the 1-year and 11-year spot rates unexpectedly decrease by 2 percent. Determine the new forward price of the contract.
- Again, do not round intermediate calculations, but present the final result rounded to two decimal places (e.g., 32.16).
**Inputs:**
- a. Forward price: [ __ ]
- b. New forward price: [ __ ]
This tutorial is designed to enhance your understanding of forward contracts and the impact of interest rate changes.
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