Suppose that on January 1 you entered into a long position in a forward contract that matures one year later. The forward price was $210 at that time, and the continuously compounded interest rate was 10% per annum for all maturities. Three months have now passed and the spot price is now $162 (interest rates are the same). What is the value of your forward contract today?
8. The 6-month, 12-month. 18-month, and 24-month zero rates are 4%, 5%, 5.5%, and 6% with semi-annual compounding.
(a) What are the rates with continuous compounding?
(b) What is the forward rate for the six-month period beginning in 6 months with continuous compounding?
(c) What is the forward rate for the six-month period beginning in 6 months with semiannual compounding?
(d) What is the value of an FRA where you will receive fixed 7% (com-pounded semiannually) on a principal of $1 million for the six-month period starting in 6 months?
