C
Cathy
Member
Hi,
I'm confused by the solution to Q1 ii) in the mock exam.
First we calculate F_0 from the current price B_0 = 64.39%. I understand this (although I forgot to do it!). Then we assume yields fall by 0.25%, so we calculate the new price of the 10 year bond as 65.954%, and use this as F_0. But isn't this the new B_0? Can anyone explain why we don't then use this 65.954% to calculate a new F_0?
Thanks
I'm confused by the solution to Q1 ii) in the mock exam.
First we calculate F_0 from the current price B_0 = 64.39%. I understand this (although I forgot to do it!). Then we assume yields fall by 0.25%, so we calculate the new price of the 10 year bond as 65.954%, and use this as F_0. But isn't this the new B_0? Can anyone explain why we don't then use this 65.954% to calculate a new F_0?
Thanks