Bank is expecting about the interest rate next year

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Reference no: EM131998232

GW Bank is trying to enter a forward contract with Muddy Hole finance company in which GW Bank is to deliver $1 million par value of zero coupon bond at the price of $95.125 per $100 par value one year later.

a. What do you think GW Bank is expecting about the interest rate next year?

b. Calculate the net profit to GW Bank if the spot price of the zero coupon bond turns out to be $94.875 at delivery.

c. Calculate the net profit to GW Bank if the spot price of the zero coupon bond turns out to be $95.565 at delivery.

Reference no: EM131998232

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