Forward and future contracts
Not what you're looking for?
Suppose that on January 10, a one-year default-free discount bond is available for $0.918329 per dollar of face value and a two-year default-free discount bond costs $0.836859 per dollar of face value.
Assuming that financial markets are perfect, suppose you want to own $1.5M face value of 1-year discount bonds in one year and you want to pay for them in one year a price you know today.
Design a portfolio strategy that achieves your objective without using a forward contract.
Suppose that you learn that the forward price of 1-year discount bonds to be delivered in one year is $0.912 per dollar of face value.
What is the price today of a portfolio that replicates a long position in the forward contract?
Purchase this Solution
Solution Summary
Forward and future contracts are examined. The expert designs a portfolio strategy that achieves the objective without using a forward contract.
Purchase this Solution
Free BrainMass Quizzes
Writing Business Plans
This quiz will test your understanding of how to write good business plans, the usual components of a good plan, purposes, terms, and writing style tips.
Organizational Behavior (OB)
The organizational behavior (OB) quiz will help you better understand organizational behavior through the lens of managers including workforce diversity.
Business Processes
This quiz is intended to help business students better understand business processes, including those related to manufacturing and marketing. The questions focus on terms used to describe business processes and marketing activities.
Marketing Research and Forecasting
The following quiz will assess your ability to identify steps in the marketing research process. Understanding this information will provide fundamental knowledge related to marketing research.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.