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View Full Version : Help with Finance Problem - Forward Contract/Coupon Bonds


dratewka2
Nov 10, 2013, 04:46 PM
Hi I've been working on a finance review for my exam and I can't seem to figure this question out hope someone can shed some light.

In the table below you find prices on zero coupon bonds with j years to maturity.
j 1 2 3 4
Bj 95 90 84 78

a) You need to borrow $100 million in two years. Since you are uncertain about future interest rates, you want to get into a forward contract to borrow $100 million two years from now for two years in the form of a discount loan. How would you construct such a forward contract?

b) How can you calculate the duration of a bond that pays $10 next year as well as every year after that in perpetuity? Explain.

Any help or first steps would be appreciated!

alanserhan
Oct 31, 2014, 02:38 AM
Hi!

I actually have the same problem. Did you find out any solution? I really appretiate if you have an answer you want to share.

Best Regards

Alan from Norway.