You Wish to Create a Synthetic Forward Rate Agreement in Which

question 13

Multiple Choice

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

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