dratewka2
Nov 10, 2013, 04:49 PM
Any help would be appreciated stuck on my exam review! Will rep you for sure :D
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.
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.