- (60) Points
(a) (10 Points) From your favorite source find and show the yield to maturity for 2-year and 5-year bonds. Make sure to tell me where you found these numbers.
A web address would do.
(b) (30 Points) Calculate FRA(2,5): A three year Forward rate that starts at the end of Year 2, and ends at the end of Year 5.
(c) (20 Points) Suppose, somehow the market decided that the FRA(2,5) was the average of the 2-year rate and the 5-year rate. Calculate how much money you can
make by taking advantage of such a mis pricing, if this is indeed a mis pricing.
- (40 Points)
(a) (10 Points) From your favorite source, find the money market rates (LIBOR) for 3-months and 6-months.
(b) (20 Points) calculate the FRA(3,6) for a 3-month forward rate that starts at the end of month 3 and ends at the end of month 6
(c) (10 Points) Find out from Eurodollar futures, the appropriate contract (it will not be exact) that should correspond to FRA(3,6). Is your rate similar?
Why or why not?
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