Finance question

tman2005 | 12:37 Fri 14th Oct 2005 | Business & Finance

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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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