Answer to Question #70453 in Finance for Nick Mango

Question #70453

This is part c, d, and e to question #70426
(c) Your boss strongly believes in the expectations theory of interest rates. He wonders
what the price of the zero coupon bond will be in a year. Compute the
expected price for him.
(d) RBC offers a forward rate over year 2, f2, of 4%. That rate is good for a loan or
deposit of $10,000. Can you make money and eat a free lunch at RBC’s expense?
If so, how?
(e) Bank of Montreal offers a forward rate over year 3, f3, of 3%. That rate is good
for a loan or deposit of $10,000. Can you make money and eat a free lunch at
Bank of Montreal’s expense? If so, how?

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