Your firm entered into a Forward Contract one year ago to buy a T Bond 5 years f

Question

Your firm entered into a Forward Contract one year ago to buy a T Bond 5 years from that time with a Forward Price of $90.75. What is the value of the contract now? At initiation, the contract was for 2 year fixed rate Treasury paying 4.4% semiannually. Hint: the Forward is now for buying the bond 4 years from now. Assume that the discount factors are now the following:

t Z 0.25 0.9891 0.5 0.9798 0.75 0.9713 1 0.9633 1.25 0.9553 1.5 0.9473 1.75 0.9392 2 0.931 2.25 0.9227 2.5 0.9143 2.75 0.9059 3 0.8973 3.25 0.8888 3.5 0.8801 3.75 0.8714 4 0.8627 4.25 0.8538 4.5 0.845 4.75 0.8361 5 0.8272 5.25 0.8182 5.5 0.8093 5.75 0.8003 6 0.7913

Explanation / Answer

Your firm entered into a Forward Contract one year ago to buy a T Bond 5 years from that time with a Forward Price of $90.75. What is the value of the contract now?

using the table that is in the problem

value of the contract now = $81.82

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