Question #71
Reading: Reading 25 The Term Structure and Interest Rate Dynamics
PDF File: Reading 25 The Term Structure and Interest Rate Dynamics.pdf
Page: 28
Status: Unattempted
Question
It is now January 1, 20x7. The one-year spot rate now is exactly equal to the one-year forward rate for a loan in one year as of January 1, 20x6. The current forward price of $1 par, zero-coupon bond for delivery on January 1, 20x8 will most likely be:
Answer Choices:
A. lower than it was on January 1, 20x6
B. the same as it was on January 1, 20x6
C. higher than it was on January 1, 20x6
Explanation
If the spot rates evolve exactly as indicated by the forward curve, the forward price would
remain unchanged.