please show workings The forward rate f(t1,t2) of a bond, is the...
90.2K
Verified Solution
Link Copied!
Question
Finance
please show workings
The forward rate f(t1,t2) of a bond, is the implicit interest rate in a future period between time t1 and t2. For example, assuming continuous time returns, if the discount rate from period 0 to t1 is: exp(rt1), and from period 0 to t2 (greater than t1 ) is: expl (rt2), then the forward rate ffrom t1 to t2 maintains the following no arbitrage relationship: exp(rt1)exp(f(t2t1)=exp(rt2)). Suppose we observe the prices of a 14-year zero-coupon bond (with a fack value of \$93.31), where P(t1,t2) repans the price of the bond between t1 and t2, and a year 7 -to-14 forward rate as follows: P(0.14)=$86.5496905000 and f(7,14)= 0.6074704253%. Calculate the price of a 7-year zero-coupon, with face value $99.27 : $82.9604 - $96.0778 (25 \%) $96.2349 $82.1804
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
