Problem: Enter into a forward contract to buy a 10-year, zero-coupon bond that will be issued in one year. The face value of the bond is $1,000, and the 1 -year and 11-year spot interest rates are 4% per annum and 9% per annum, respectively. Both of these interest rates are expressed as effective annual yields (EAYs). one year. The face value of the bond is:
Q1. What is the forward price of your contract?
Q2. Suppose both the spot rates unexpectedly shift downward by 1%. What is the price of a forward contract otherwise identical to yours?