# a2 - ActSc 446/846 Winter 2006 Assignment 2 Due Date...

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ActSc 446/846 Winter 2006 Assignment 2 Due Date: Feb,3,2006, 5:00pm, Outside my office 1. Suppose that F 1 and F 2 are two forward prices on the same commodity with time to maturities t 1 and t 2 , where t 2 > t 1 . Prove that F 2 ≤ F 1 e r ( t 2- t 1 ) where r is the interest rate (assumed constant) and there are no storage costs. 2. Consider a forward contract written on an underlying asset with delivery price K and delivery time T . Assume that q is the annual yield of the underlying asset. Show that, the time t ( < T ) price of a long position of this forward contract is S t e- q ( T- t )- Ke- r ( T- t ) where S t is the underlying asset’s value at time t , and r is the constant risk-free interest rate. 3. The 6-month, 12-month, 18-month, and 24-month zero rates are 4%, 4.5%, 4.75%, and 5%, with semiannual compounding. (a) What are the rates with continuous compounding? (b) What is the forward rate for the 6-month period beginning in 18 months?...
View Full Document

{[ snackBarMessage ]}

Ask a homework question - tutors are online