Today is March 26th A Treasury bond is trading at a quoted p

Today is March 26^th. A Treasury bond is trading at a quoted price of 94 10/32. The Treasury bond has a 7% coupon payable on June 1^st and December 1^st. Short term interest rates as of March 26^th are 2.9% for 3 months or less and 4.8% for more than 3 months based on continuous compounding. Determine the forward cash price of the bond for August 1, 2018.

Solution

Forward Price of a security = S0 e x r x t + C e x r x (t -t1) S0 = 94 + 10/32 $94.3125 Coupon Income = $100 x 7% $7.00 Rate - 4.8%/365 days 0.0132% t1 = March 26th to June 1 67.00 days Period - Mar 26th to Aug 1st = t 128 days Forward Price of a security ($94.31 exp (.0132% x 128))- (7 Exp x .0132 x ($128 - $67) $88.8571