Safaril 3:21 AM 39% Expert Q&A Consider a one-year forward contract whose underl

Question

Safaril 3:21 AM 39% Expert Q&A Consider a one-year forward contract whose underlying asset is a coupon paying bond with maturity date beyond the expiration date of the forward contract. Assume that the bond pays coupon at the end of every June and December at the coupon rate of 3%, and the face value of the bond is $100 Suppose now it is February 1st and the current market price of the bond is $93.2. Taking the risk- free annual interest rate to be at the constant value of 8%, find the forward price of this bond forward I think this is the formula to be used: r(T-t')

Explanation / Answer

Price of coupon paying bond forward=(Spot Price-Prsent value of coupons)*e^(risk free rate*time)=(93.2-(4/6)*3%*100/2*e^(-8%*4/12)-3%*100/2*e^(-8%*10/12))*e^(8%*10/12)=97.08431388

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