CFA Practice Question

CFA Practice Question

The spot rates and forward rates for Treasuries are:

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
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