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Finance question
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you enter into a forward contract to buy a 10 year, zero coupon bond that will be issued in one year. The face valueof the bond is 1,000 and the 1 year and 11 year spot interest rates are 3 percent per annum and 8 percent per annum respectively. Both of these interest rates are expressed as effective annual yields (EAYs).
A. What is the forward price of your contract?
B. Suppose both the 1 year and 11 year spot rates unexpectedly shift downward by 2 percent. What is the price of a forward cntract otherwise identical to yours?
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