Question

This morning you agreed to buy a one-year Treasury bond in six months. The bond has a face value of $1,000. Use the spot interest rates listed here to answer the following questions.

Time		EAR
6 months		3.75	%
12 months		4.19
18 months		4.87
24 months		5.59

  

a.	What is the forward price of this contract? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Forward price

$

  

b.

Suppose shortly after you purchased the forward contract all rates increased by 30 basis points. For example, the six-month rate increased from 3.75 percent to 4.05 percent. What is the price of a forward contract otherwise identical to yours given these changes? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

  

Forward price

$

Answer 1