Question #46
Reading: Reading 30 Pricing and Valuation of Forward Commitments
PDF File: Reading 30 Pricing and Valuation of Forward Commitments.pdf
Page: 19
Status: Unattempted
Question
Calculate the price of a 200-day forward contract on an 8%, semi-annual, U.S. Treasury bond with a spot price of $1,310. Next coupon payment will be made in 150 days. The annual risk- free rate is 5%.
Answer Choices:
A. $1,333.50
B. $1,270.79
C. $1,305.22
Explanation
Coupon = (1,000 × 0.08) / 2 = $40.00
Present value of coupon payment = $40.00 / 1.05150/365 = $39.21
Forward price on the fixed income security = ($1,310 - $39.21) × (1.05)200/365 = $1,305.22