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Question: Assume all rates are annualized with semi-annual compounding. Please be explicit about how you derive your results and round to four decimals after the comma.

(Part I) At time 0, Investor A enters into a forward contract, at no cost, to buy, at time 2, $100,000 par of a zero maturing at time 3. The forward price this investor locks in to pay at time 2 is $93,000.

a. What forward rate does this investor lock in at time 0, through this forward contract, for lending from time 2 to time 3?

(Part II) At time 1, the spot price of $1 par of a zero maturing at time 2 is 0.97 and the spot price of $1 par of a zero maturing at time 3 is 0.93.

a. At time 1, what is the forward price an investor could lock in to pay, at time 2, for $100,000 par of a zero maturing at time 3?

b. What is the value, at time 1, of Investor A's position in the forward contract from Part I?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92776123

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