You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the bond is $1,000 and the 1-year and 11-year spot interest rates are 5.3 percent and 7.3 percent, respectively. a. What is the forward price of your contract? (Do not round intermediate calculations 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 1.5 percent. What is the new price of the forward contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)
You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued in one year. The face value of the bond is $1,000 and the 1-year and 11-year spot interest rates are 5.3 percent and 7.3 percent, respectively. a. What is the forward price of your contract? (Do not round intermediate calculations 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 1.5 percent. What is the new price of the forward contract? (Do not round intermediate 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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Transcribed Image Text:You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued
in one year. The face value of the bond is $1,000 and the 1-year and 11-year spot interest
rates are 5.3 percent and 7.3 percent, respectively.
a. What is the forward price of your contract? (Do not round intermediate calculations
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 1.5
percent. What is the new price of the forward contract? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
a. Forward price
b. New forward price
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Transcribed Image Text:You enter into a forward contract to buy a 10-year, zero coupon bond that will be issued
in one year. The face value of the bond is $1,000 and the 1-year and 11-year spot interest
rates are 5.3 percent and 7.3 percent, respectively.
a. What is the forward price of your contract? (Do not round intermediate calculations
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 1.5
percent. What is the new price of the forward contract? (Do not round intermediate
calculations and round your answer to 2 decimal places, e.g., 32.16.)
Answer is complete but not entirely correct.
a. Forward price
585.92 X
b. New forward
price
682.87 X
$
$
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