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  3. suppose that the prices of zero-coupon bonds with

Suppose that the prices of zero-coupon bonds with various maturities are given in the following table....

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Finance

Suppose that the prices of zero-coupon bonds with variousmaturities are given in the following table. The face value of eachbond is $1,000.

Maturity (Years)Price
1$925.93
2853.39
3782.92
4715.00
5650.00

a. Calculate the forward rate of interest foreach year. (Round your answers to 2 decimalplaces.)

b. How could you construct a 1-year forwardloan beginning in year 3? (Round your Rate of syntheticloan answer to 1 decimal place.)

Face Value $
Rate on synthetic loan

c. How could you construct a 1-year forwardloan beginning in year 4?

Face Value

Rate on synthetic loan

Answer & Explanation Solved by verified expert
4.4 Ratings (795 Votes)
Question A Forward rate Current price Future price 1 100 Year 2 92593 85339 1 100 85 Maturity Price Working Forward rate 1 92593 2 85339    See Answer
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