Forwards on zero coupon bonds

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Reference no: EM131243539

Forwards on zero coupon bonds Suppose t ≤ T₁ ≤ T₂ ≤ T₃, where t is current time, and ? > 0. Recall that Z(T₁, T₂) is the price at time T₁ of a ZCB with maturity T₂, and F (T₁, T₂, T₃) is the forward price at time T1 for a forward contract with maturity T₂ on a ZCB with maturity T₃.

(a) For each of the pairs of A and B in Table, choose the most appropriate relationship out of ≥, ≤, = and ?, where ? means the answer is indeterminate. Give brief reasoning

(b) What can you say about interest rates between T₁ and T₂ if

(i) Z (t, T₁) = Z (t, T₂)?

(ii) Z (t, T₁) > 0 and Z (t, T₂) = 0?

Reference no: EM131243539

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