Bond forward

CFA Level II Derivatives
#1

The contract is a 270-day forward on a $100 par treasury bond with ten years remaining to maturity. The bond has a 5% coupon rate, has just made a coupon payment, and will make its next two coupon payment in 182 days and in 365 days. It is currently selling for 98.25. The risk free rate is 4%. What is the no arbitrage price for the forward contract on the treasury bond?

Thank you!

#2

you are receiving 98.25 today - forward for 270 days = 98.25 * (1.04)^(270/365) = 101.1422

  • 5 coupon in 182 days -> 5 (1.04)^((270-182)/365)=5.0475

total = 106.1897?

I have forgotten this … so may have made some mistake somewhere

#3

We should subtract future value of coupon, not add on.

My question is: should we also subtract accrued interest at t=270. Future value of the bond should be quoted as clean price.