Determine the forward price of contract

Reference no: EM1362901

Please show how you came up with the calculations for the problem:

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 4 percent per annum and 9 percent per annum, respectively. Both of these interest rates
are expressed as effective annual yields (EAYs).

a. What is the forward price of your contract?

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

Reference no: EM1362901

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