1. An investor purchased a newly issued bond with a maturity of 10 years 150 days ago. The bond carries a coupon rate of 5% paid semi-annually and has a face value of $1,000. The price of the bond with accrued interest is currently $926.92. The investor plans to sell the bond 365 days from now. The schedule of coupon payments over the first two years, from the date of purchase, is as follows: Coupon Days after purchase Amount First 181 $25 Second 365 $25 Third 547 $25 Fourth 730 $25 Assume that the risk-free rate is 6.0%. The no-arbitrage price at which the investor should enter into a forward contract is: a. $931.79 b. $929.54 c. $930.56

1. An investor purchased a newly issued bond with a maturity of 10 years 150 days ago. The bond carries a coupon rate of 5% paid semi-annually and has a face value of $1,000. The price of the bond with accrued interest is currently $926.92. The investor plans to sell the bond 365 days from now. The schedule of coupon payments over the first two years, from the date of purchase, is as follows: Coupon Days after purchase Amount First 181 $25 Second 365 $25 Third 547 $25 Fourth 730 $25 Assume that the risk-free rate is 6.0%. The no-arbitrage price at which the investor should enter into a forward contract is: a. $931.79 b. $929.54 c. $930.56

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter2: The Domestic And International Financial Marketplace

Section: Chapter Questions

Problem 5P

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Question

An investor purchased a newly issued bond with a maturity of 10 years 150 days ago. The bond carries a coupon rate of 5% paid semi-annually and has a face value of $1,000. The price of the bond with accrued interest is currently $926.92. The investor plans to sell the bond 365 days from now. The schedule of coupon payments over the first two years, from the date of purchase, is as follows:

Coupon Days after purchase Amount
First 181 $25
Second 365 $25
Third 547 $25
Fourth 730 $25

Assume that the risk-free rate is 6.0%. The no-arbitrage price at which the investor should enter into a forward contract is:

$931.79

$929.54

$930.56

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