Homework SourseToday is March 26th A Treasury bond is trading at a quoted p
Today is March 26th. A Treasury bond is trading at a quoted price of 94 10/32. The Treasury bond has a 7% coupon payable on June 1st and December 1st. Short term interest rates as of March 26th 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
ANSWER:
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
| 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 |
