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Question About Price Of a Forward Contract

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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% per annum and 9% per annum respectively. Both of these interest rates are expressed as effective annual yields (EAY's).

a) What is the forward price of your contract?

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

**respond with answers in EXCEL and show formulas

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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% per annum and 9% per annum respectively. Both of these interest rates are expressed as effective annual yields (EAY's).

a) What is the forward price of your contract?

b) Suppose both the spot rates unexpectedly shift downward by 1%. What is the price of a ...

Solution Summary

The solution calculates the price of a forward contract for different spot interest rates.

$2.19
See Also This Related BrainMass Solution

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What are the forward price and the initial value of the forward contract?
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Make sure that you show or explain all calculations. Make sure you answer all questions above.

Suppose the current spot price for gold is $800 per ounce. The risk-free interest rate available to all investors for borrowing or lending is 0.50% per month (monthly compounding). Forward contracts are available to buy or sell gold for delivery in 1 year; the forward price for gold is $890 per ounce. You have a large inventory of gold.
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Make sure that you show or explain all calculations. Make sure you answer all questions above.

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