Assume all rates are annualized with semi-annual compounding. Please be explicit about how you derive your results and r
Posted: Wed Mar 09, 2022 8:49 am
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. The current price of $1 par of a
zero maturing at time 2 is $0.97. The current price of $1 par
of a zero maturing at time 3 is $0.92. You can enter into a
forward contract today to buy, at time 2, $1 par of a zero maturing
at time 3. The price you would pay at time 2 is the forward price.
The cost today of entering into this contract is zero.
a. Construct a portfolio of 2- and 3-year zeroes that
synthesizes this forward contract.
b. What is the no arbitrage forward price?
c. What is the dollar duration of the forward contract?
Please be explicit about how you derive your results and round to
four decimals after the comma. The current price of $1 par of a
zero maturing at time 2 is $0.97. The current price of $1 par
of a zero maturing at time 3 is $0.92. You can enter into a
forward contract today to buy, at time 2, $1 par of a zero maturing
at time 3. The price you would pay at time 2 is the forward price.
The cost today of entering into this contract is zero.
a. Construct a portfolio of 2- and 3-year zeroes that
synthesizes this forward contract.
b. What is the no arbitrage forward price?
c. What is the dollar duration of the forward contract?