CAS Exam 9 Spring 2014, Question 7
Study guide: Exam 9
Given the following information about bonds with coupons paid annually:
| Bond | Bond Par Value | Time to Maturity (in years) | Annual Coupon Rate | Bond Price |
|---|---|---|---|---|
| 1 | $100 | 1.0 | 0% | $95.12 |
| 2 | $100 | 2.0 | 0% | Unknown |
| 3 | $100 | 3.0 | 0% | $78.66 |
| 4 | $100 | 3.0 | 5% | $91.72 |
Company A and Company B enter into a forward rate agreement with the following attributes:
- Company A will lend money to Company B in two years for a term of one year.
- The principal amount of this loan is $8,000,000.
- The annual interest rate for this loan is 12% compounded annually.
Calculate the value of the forward rate agreement to Company B.
Part a (1.75 points)
No current syllabus covers this question; it is kept for the record.
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