1) Compute the price of a zero-coupon bond (ZCB) that matures at time t=10 and t
ID: 2739557 • Letter: 1
Question
1) Compute the price of a zero-coupon bond (ZCB) that matures at time t=10 and that has face value 100
2) Compute the price of a forward contract on the same ZCB of the previous question where the forward contract matures at time t=4.
3) Compute the initial price of a futures contract on the same ZCB of the previous two questions. The futures contract has an expiration of t=4.
4) Compute the price of an American call option on the same ZCB of the previous three questions. The option has expiration t=6 and strike =80.
5) Compute the initial value of a forward-starting swap that begins at t=1, with maturity t=10 and a fixed rate of 4.5%. (The first payment then takes place at t=2 and the final payment takes place at t=11 as we are assuming, as usual, that payments take place in arrears.) You should assume a swap notional of 1 million and assume that you receive floating and pay fixed.)
Explanation / Answer
1. Price of a Zero Coupon Bond = Face Value / (1+r)n = 100 / (1+0.05)10 = $61.39
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