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Question
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. What are the transactions used to create this instrument?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
Answer
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