Computing price of forward contract

Assignment Help Accounting Basics

Reference no: EM13116047

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 3 percent per annum and 8 percent per annum, respectively. Both of these interest rates are expressed as effective annual yields.

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?

Reference no: EM13116047

Questions Cloud

Return and risk of small-company stocks : Calculate the average returns on small-company stocks and u.s. treasury bills. Calculate the variances and standard deviations of the returns on small-company stocks and u.s. treasury bills.

Portfolio management for personal financial planning : Explain some disadvantages of Cliff's current investment approach. Construct a portfolio for Cliff, limiting your selections to mutual funds (assume that he sells his current stock and bond holdings). Make sure your plan indicates specific dollar a..

Find probability that total weight of eight people exceeds : What is the probability that the total weight of eight people exceeds 1300 pounds? 1500 pounds? (Assume that the probability distribution is approximately normal).

What is the boiling point of molal solution of sugar : What is the boiling point of a 0.800 molal solution of sugar in water? Kb = 0.512C/m for water. Sugar does not dissociate in solution and pure water boils at 100C.

Computing price of forward contract : What is the forward price of your contract? 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?

Find probability that sample average will be below a value : If the population standard deviation is $7, and a random sample of 50 properties is chosen, what is the probability that the sample average will be below $35?

Evaluate the significance of the results : Suppose there are two samples of size 6 and 7, with a rank sum of 58 in the sample of size 6. Using the Wilcox on rank-sum test, evaluate the significance of the results, assuming there are no ties.

What is the normal boiling point of arsine : Arsine (AsH3) has a vapor pressure is 35 Torr at -111.95?C and 253 Torr at -83.6 ?C. What is the normal boiling point of arsine.

Distant learning project-presentation : Your meeting with the CEO and other officers of the distance learning investment company will last for 35 minutes. You must get them to buy into your idea or the project will fade away.

User Account

All Pages