Chapter 15, Problem 18PS

a.

Summary Introduction

To calculate: The forward rate of interest for each year when the given face value of the bond is $1000.

Introduction:

Forward rate of interest: It is supposed to be interest rate related to future period that is confirmed or locked by the parties involved in the financial transaction.

b.

Summary Introduction

To determine: The construction of a 1-year forward loan beginning in year-3 and confirm that the rate on loan equals the forward loan.

Introduction:

Forward mortgage loan: It is one of the fixed-rate mortgages. In this type of loan, the interest rates to be charged ahead can be locked in advance at the start of the mortgage term.

c.

Summary Introduction

To determine: The construction of a 1-year forward loan beginning in a year 4.

Introduction:

Forward mortgage loan: It is one of the fixed-rate mortgages. In this type of loan, the interest rates to be charged ahead can be locked in advance at the start of the mortgage term.