Using base 100 pricing,the price of bonds that mature in years 1,2,and 3 is 101.92,100.87,and 99.34,respectively.Given this data,what is the 2-year forward price for a 1-year bond?

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Quizplus · Accepted Answer

The 2-year forward price for a 1-year bond is the price of a 1-year bond that will mature in 2 years. This can be calculated using the following formula:2-year forward price = (1 + 1-year spot rate)^2 / (1 + 2-year spot rate)where the 1-year spot rate is the yield to maturity on a 1-year bond, and the 2-year spot rate is the yield to maturity on a 2-year bond.In this case, the 1-year spot rate is 101.92/100 - 1 = 1.92%, and the 2-year spot rate is 100.87/100 - 1 = 0.87%.Therefore, the 2-year forward price for a 1-year bond is:(1 + 1.92%)^2 / (1 + 0.87%) = 98.48

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