In: Finance
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 | % |