Using base 100 pricing,the price of bonds that mature in years 1,2,3,and 4 is 93.46,92.22,91 98 and 90.23,respectively.Given this data,what is the 2-year forward price for a 2-year bond?

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Quizplus · Accepted Answer

The 2-year forward price for a 2-year bond can be calculated using the formula for forward rates, which involves the prices of zero-coupon bonds. The formula to find the forward price from year 2 to year 4 (a 2-year period starting 2 years from now) is given by: $F = \frac{P_{t_1}}{P_{t_2}}$, where $F$ is the forward price, $P_{t_1}$ is the price of the bond maturing at the beginning of the period (year 2 in this case), and $P_{t_2}$ is the price of the bond maturing at the end of the period (year 4 in this case). Given the prices:- 2-year bond price = 92.22- 4-year bond price = 90.23The forward price from year 2 to year 4 is calculated as: $F = \frac{92.22}{90.23} \times 100 = 98.92$.This calculation adjusts the prices to a base 100 scale and finds the price of a bond in year 2 that would grow to the price of a bond in year 4, representing the 2-year forward price for a 2-year bond starting 2 years from now.

Using Base 100 Pricing,the Price of Bonds That Mature in Years