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In: Finance

Suppose that the prices of zero-coupon bonds with various maturities are given in the following table....

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) Price
1 $ 925.93
2 853.39
3 782.92
4 715.00
5 650.00

a. Calculate the forward rate of interest for each year. (Round your answers to 2 decimal places.)

Maturity (Years) Forward rate
2 %
3 %
4 %
5 %

b. How could you construct a 1-year forward loan beginning in year 3? (Round your Rate of synthetic loan answer to 1 decimal place.)

Face value
Rate of synthetic loan %

c. How could you construct a 1-year forward loan beginning in year 4?

Face value
Rate of synthetic loan %

Solutions

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