CFA Practice Question
The spot rates and forward rates for Treasuries are:
1 | 2.97% (from time 0.5 to 1)
1.5 | 3.02% (from time 1 to time 1.5)
2 | 3.06% (from time 1.5 to 2)
Maturity (Years) | Forward Rate (BEY) 0.5 | 2.9% (from time 0 to 0.5)
1 | 2.97% (from time 0.5 to 1)
1.5 | 3.02% (from time 1 to time 1.5)
2 | 3.06% (from time 1.5 to 2)
The price of a default free Zero coupon with face value $1 million and maturity 2 years is:
A. $942,825
B. $942,416
C. $888,149
Explanation: Price =Face Value/((1+(Forward_Rate_1/2))*((1+( Forward_Rate_2/2)))*((1+( Forward_Rate_3/2)))*((1+( Forward_Rate_4/2))))
User Contributed Comments 2
| User | Comment |
|---|---|
| chantal | I keep on getting 963$ can anyone help ? |
| Sandar | discount factor = (1+2.9%/2)*(1+2.97%/2)*(1+3.02%/2)*(1+3.06%/2) then 1 (FV)/discount factor |