Explanation

Forward Bucket '01 Calculation

The forward bucket '01 measures the change in a bond's value when forward rates in a specific time bucket increase by 1 basis point (0.01%).

Step 1: Calculate Current Bond Value

• Annual coupon = 5% × CNY 100,000 = CNY 5,000
• Flat forward rate curve at 3%
• Maturity = 3 years

Current bond value:

$$\frac{5,000}{1.03} + \frac{5,000}{1.03^2} + \frac{105,000}{1.03^3} = 105,657.22$$

Step 2: Apply 1 bp Shift to 2-3 Year Forward Bucket

When forward rates in the 2-3 year bucket increase by 1 bp:

• Year 1 forward rate remains at 3%
• Year 2 forward rate becomes 3.01%
• Year 3 forward rate becomes 3.01%

Bond value after shift:

$$\frac{5,000}{1.03} + \frac{5,000}{1.03 \cdot 1.0301} + \frac{105,000}{1.03 \cdot 1.0301 \cdot 1.0301} = 105,647.89$$

Step 3: Calculate Forward Bucket '01

$$\text{Forward Bucket '01} = 105,657.22 - 105,647.89 = \text{CNY } 9.33$$

Why Other Options Are Incorrect

• B (CNY 19.11): Incorrectly calculates the bond value after shift as 105,638.11
• C (CNY 20.04): Incorrectly applies the shift to wrong periods
• D (CNY 27.98): Incorrectly applies the shift only to the final cash flow

This calculation demonstrates how forward bucket '01 isolates the interest rate sensitivity of cash flows in specific forward time periods.