You wish to create a synthetic forward rate agreement in which you would lock in a return between 150 and 310 days. The price of a 150-day zero coupon bond is 0.9823 and the price of 310-day zero coupon bond is 0.9634. Which one of the following method is the correct method to create the synthetic FRA? Explain. [Professor’s note: This is a challenging questions]. A) Borrow one 150-day bond and invest in 1.02 of the 310-day bondsB) Borrow two 150-day bonds and invest in 0.98 of the 310-day bonds C) Lend one of the 150-day bonds and borrow 1.02 of the 310-day bonds D) Lend two of the 150-day bonds and borrow 0.98 of the 310-day bonds

You wish to create a synthetic forward rate agreement in which you would lock in a return between 150 and 310 days. The price of a 150-day zero coupon bond is XXXXXXXXXXand the price of 310-day zero...

1. You wish to create a synthetic forward rate agreement in which you would lock in a return between 150 and 310 days. The price of a 150-day zero coupon bond is 0.9823 and the price of 310-day zero coupon bond is 0.9634. Which one of the following method is the correct method to create the synthetic FRA? Explain. [Professor’s note: This is a challenging questions].
2. A) Borrow one 150-day bond and invest in 1.02 of the 310-day bonds
  B) Borrow two 150-day bonds and invest in 0.98 of the 310-day bonds C) Lend one of the 150-day bonds and borrow 1.02 of the 310-day bonds D) Lend two of the 150-day bonds and borrow 0.98 of the 310-day bonds

Jun 08, 2022