Suppose that you observe the following pattern of prices for 1-year, 2-year

| July 11, 2016

Question
Suppose that you observe the following pattern of prices for 1-year, 2-year, 3-year and 4-year discount bonds (FV = $100):

Time to Maturity 1 2 3 4

Price 95.24 89.00 82.78 76.29

Suppose that you have a customer who knows that she will have a need for $20 million for one year starting from the end of the third year. She would like to get into a forward contract with you to borrow this $20 million three years from now for one year in the form of a discount loan.

Can you quote your customer an interest rate for this forward loan? If so, what is it?

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