Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:Suppose that the prices of zero-coupon bonds with various maturities are given in the following table. The face value of each bond is
$1,000.
Maturity (Years)
1
2
3
4
5
Required:
a. Calculate the forward rate of interest for each year.
b. How could you construct a 1-year forward loan beginning in year 3?
c. How could you construct a 1-year forward loan beginning in year 4?
Required A
Price
$940.93
Complete this question by entering your answers in the tabs below.
868.39
800.92
735.40
670.48
Required B
Maturity (years)
2
3
Calculate the forward rate of interest for each year.
Note: Round your answers to 2 decimal places.
Required C
Forward Rate
%
%
Prov
12 of 12
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Step 1: Introduction to forward rate of interest
VIEW Step 2: Part (A) Calculation of the forward rate of interest for each year
VIEW Step 3: Part (B) Calculation of construct a 1-year forward loan beginning in year 3
VIEW Step 4: Part (C)Calculation of construct a 1-year forward loan beginning in year 4
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