Illustrate what is the price of a forward contract

Reference no: EM1332927

Description of Forward contract

You enter into a forward contract to buy a 10-year, zero coupon bond that will be iussued in one year. The face value of the bond is $1000, and the 1-year and 11-year spot interest rates are 3 percent per annum and 8 percent per annum, respectively. Both of these interest rates are expressed as effective annual yiels (EAY's).

a) What is the forward price of your contract?

b) Suppose both the 1-year and 11-year spot rates unexpectedly shift downward by 2 percent. What is the price of a forward contract otherwise identical to yours?

Please show the mathematical calculations

Reference no: EM1332927

Questions Cloud

Discussing the case of breach of duty : The employee was caught; however, he has subsequently spent the money and it cannot be recovered. Has this director breached any of his director's duty as a result?

Pros and cons of working with multiple tables : express pros and cons of working with multiple tables.

Process for turning a job analysis : The process for turning a job analysis into a position description and the legal requirements for position descriptions

Driving influences affect the decision-making of consumers : What are driving influences that affect the decision-making of consumers? Can you illustrate an example in which senior men or women are influenced by a product?

Illustrate what is the price of a forward contract : Assume both the 1-year and 11-year spot rates unexpectedly shift downward by 2 percent. Illustrate what is the price of a forward contract otherwise identical to yours.

Explain external constraints when starting an e-business : Explain What are the external constraints when starting an e-Business

Determine this strategy from an ethical perspective : Important information about Staffing - Determine this strategy from an ethical perspective.

Create application for an "automotive repair shop" : Create Visual Basic.NET application for an "Automotive Repair Shop". Below are the needed.

Market risk premium under capm : Analysts give Proctor & Gamble, the consumer products firm, an equity beta of 0.65. The risk-free rate is 4.0 percent. What market risk premium is she assuming?

User Account

All Pages