Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) Price 1 $ 998.78 2 880.89 3 815.92 4 752.40 5 685.70 a. Calculate the forward rate of interest for each year. (Round your answers to 2 decimal places.) b. How could you construct a 1-year forward loan beginning in year 3? (Round your Rate of synthetic loan answer to 2 decimal places.) c. How could you construct a 1-year forward loan beginning in year 4? (Round your answers to 2 decimal places.)
Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is $1,000. Maturity (Years) Price 1 $ 998.78 2 880.89 3 815.92 4 752.40 5 685.70 a. Calculate the forward rate of interest for each year. (Round your answers to 2 decimal places.) b. How could you construct a 1-year forward loan beginning in year 3? (Round your Rate of synthetic loan answer to 2 decimal places.) c. How could you construct a 1-year forward loan beginning in year 4? (Round your answers to 2 decimal places.)
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 9P
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Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face
Maturity (Years) | Price | ||
1 | $ | 998.78 | |
2 | 880.89 | ||
3 | 815.92 | ||
4 | 752.40 | ||
5 | 685.70 | ||
a. Calculate the forward rate of interest for each year. (Round your answers to 2 decimal places.)
b. How could you construct a 1-year forward loan beginning in year 3? (Round your Rate of synthetic loan answer to 2 decimal places.)
c. How could you construct a 1-year forward loan beginning in year 4? (Round your answers to 2 decimal places.)
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