FIN 208 – Exactly one year ago today the prices on zero-coupon US
Subject: Business   / Finance
Question
Exactly one year ago today (say 4/20/14), the prices on zero-coupon US treasury bonds were as follows:
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Maturity In Years
Price
1Â Â Â 98
2Â Â Â 94
3Â Â Â 90
4Â Â Â 82
The current (i.e., 4/20/15) prices are as follows:
Maturity In Years   Price
1Â Â Â 96
2Â Â Â 92
3Â Â Â 88
4Â Â Â 80
a. What was the one-year forward rate last year?
b. What was the one-year forward rate for two years in the future last year?
c.Using the current yield curve, what is the relationship between the forward rate and what actually happened?
d. If the forward rate is a prediction of the rates next year, what will a two-year zero sell for next year?
