An investor wishes to purchase a 1-year forward contract on a risk-free bond which has a current market price of 97 per 100 nominal. The bond will pay coupons at a rate of 7% per annum half-yearly. The next coupon payment is due in exactly 6 months, and the following coupon payment is due just before the forward contract matures. The 6-month risk-free spot interest rate is 5% per annum effective and the 12-month risk-free spot interest rate is 6% per annum effective. Stating all necessary assumptions

(a) Calculate the forward price of the bond.

(b) Calculate the 6-month forward rate for an investment made in 6 months time.

(c) Calculate the purchase price of a risk-free bond with exactly 1 year to maturity which is redeemed at par and which pays coupons of 4% per annum half-yearly in arrears.

(d) Calculate the gross redemption yield from the bond in (c).

(e) Comment on why your answer in (d) is close to the 1-year spot rate.