Question
Suppose that zero interest rates with continuous compounding are as follows: Maturity (months) Rate (% per...
Suppose that zero interest rates with continuous compounding are as follows:
|
Maturity (months) |
Rate (% per annum) |
|
3 |
3.0 |
|
6 |
3.2 |
|
9 |
3.4 |
|
12 |
3.5 |
|
15 |
3.6 |
|
18 |
3.7 |
Calculate forward interest rates for the second, third, fourth, fifth, and sixth quarters.
Homework Answers
Answer #1
Sol:
|
Maturity (months) |
Rate (per annum) |
Quarters |
Forward interest rate |
|
3 |
3.00% |
||
|
6 |
3.20% |
2nd quarter |
3.40% |
|
9 |
3.40% |
3rd quarter |
3.80% |
|
12 |
3.50% |
4th quarter |
3.80% |
|
15 |
3.60% |
5th quarter |
4.00% |
|
18 |
3.70% |
6th quarter |
4.20% |
Workings
Not the answer you're looking for?
Similar Questions
Currently, in October 2020, the term-structure of spot rates is as follows (with continuous compounding): Maturity...
Currently, in October 2020, the term-structure of spot rates is
as follows (with continuous compounding):
Maturity (years)
Zero-rate (%)
1
1.0
2
2.0
3
3.0
(a) Consider a 2-year forward contract on a zero-coupon bond.
This bond is risk-free and will pay a face value of $1,000 in year
3. What is the forward price? [6 points]
(b) Suppose that, in October 2020, an investor entered a long
position in the forward found in (a). One year later, in October...
In January 2020, the term-structure of spot rates is as follows (with continuous compounding): Maturity (years)...
In January 2020, the term-structure of spot rates is as
follows
(with continuous compounding):
Maturity (years) Zero-rate(%)
1 2.0
2 3.0
3 4.0
(a) A 3-year zero-coupon bond has the face value of $1,000.
Consider a 1-year forward
contract on the zero coupon bond. What should be the forward
price?
(b)Suppose that an investor takes a long position in the above
forward contract. One year
later, in January 2021, the term-structure turns out to be as
follows:
Maturity (years) Zero-rate(%)...
Assuming the current zero rates (based on continuous compounding) for 6 months and nine months are...
Assuming the current zero rates (based on continuous
compounding) for 6 months and nine months are 4% and 5%
respectively. Assume further that a FRA was entered into several
months ago that enables the holder to earn 6% (per annum based on
quarterly compounding) for a 3-month period starting 6 months from
now on a principal of $1,000,000. What is the value of the FRA to
the person receiving funds?
Please show any formulas used.
In an interest rate swap offered by a bank, Company A could pay 3.5% per annum...
In an interest rate swap offered by a bank, Company A could pay
3.5% per annum and receive six-month LIBOR in return on a notional
principal of $100 million with payments being exchanged every six
months. The swap has a remaining life of 16 months. Six-month
forward LIBOR for all maturities is currently 3.8% per annum. The
six-month LIBOR rate two month ago was 3.2% per annum. OIS rates
for all maturities are currently 3.0% with continuous compounding.
All other...
In an interest rate swap, a financial institution has agreed to pay 3.6% per annum and...
In an interest rate swap, a financial institution has agreed to
pay 3.6% per annum and to receive three-month LIBOR in return on a
notional principal of $100 million with payments being exchanged
every three months. The swap has a remaining life of 14 months.
Three- month forward LIBOR for all maturities is currently 4% per
annum. The three-month LIBOR rate one month ago was 3.2% per annum.
OIS rates for all maturities are currently 3.8% with continuous
compounding. All...
In an interest rate swap, a financial institution has agreed to pay 3.6% per annum and...
In an interest rate swap, a financial institution has agreed to
pay 3.6% per annum and to receive three-month LIBOR in return on a
notional principal of $100 million with payments being exchanged
every three months. The swap has a remaining life of 14 months.
Three-month forward LIBOR for all maturities is currently 4% per
annum. The three-month LIBOR rate one month ago was 3.2% per annum.
OIS rates for all maturities are currently 3.8% with continuous
compounding. All other...
The risk-free rate of interest for borrowing is 4.2% per annum with continuous compounding, and the...
The risk-free rate of interest for borrowing is 4.2% per annum
with continuous compounding, and the corresponding risk-free rate
for lending is 0.7% per annum lower. The dividend yield is 0.4% per
annum. The current value of a stock index is 1,404. There are no
other transactions costs involved in spot-futures arbitrage. What
is the width of the no-arbitrage window of a futures contract with
six months to maturity? Use one decimal place for your answer.
Answer = 5
Suppose that the risk-free interest rate is 8% per annum with continuous compounding. The dividend yield...
Suppose that the risk-free interest rate is 8% per annum with
continuous compounding. The dividend yield on a stock is 3.5% per
annum. The stock currently is selling at $255.17 and the futures
price for a contract deliverable in five months is $270.
a. Is there an arbitrage opportunity?
(sample answer: yes; or no)
b. If there is an arbitrage opportunity, then will you long
futures or short futures?
(sample answer: Long; or Short)
c. What is the arbitrage profit...
Suppose that the risk-free interest rate is 8% per annum with continuous compounding. The dividend yield...
Suppose that the risk-free interest rate is 8% per annum with
continuous compounding. The dividend yield on a stock is 3.5% per
annum. The stock currently is selling at $255.17 and the futures
price for a contract deliverable in five months is $270.
a. Is there an
arbitrage opportunity? (sample answer: yes; or no)
b. If there is an
arbitrage opportunity, then will you long futures or short futures?
(sample answer: Long; or Short)
c. What is the
arbitrage profit per share if...
Suppose that the risk-free interest rate is 8% per annum with continuous compounding. The dividend yield...
Suppose that the risk-free interest rate is 8% per annum with
continuous compounding. The dividend yield on a stock is 3.5% per
annum. The stock currently is selling at $255.17 and the futures
price for a contract deliverable in five months is $270.
a. Is there an arbitrage opportunity?
(sample answer: yes; or no)
b. If there is an arbitrage opportunity, then will you long
futures or short futures?
(sample answer: Long; or Short)
c. What is the arbitrage profit...
ADVERTISEMENT
Need Online Homework Help?
Get Answers For Free
Most questions answered within 1 hours.
ADVERTISEMENT
Active Questions
asked 22 minutes ago
asked 23 minutes ago
asked 29 minutes ago
asked 58 minutes ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 1 hour ago
asked 2 hours ago
asked 2 hours ago
asked 3 hours ago
asked 3 hours ago