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( i ) A forward contract written on a bond has 1 0 months remaining until maturity. The face value of the bond is $
i A forward contract written on a bond has months remaining until maturity.
The face value of the bond is $ and it pays a coupon every months.
The final coupon is due immediately prior to the maturity of the forward. The relevant riskless rate of interest is
If the bond is trading at $
calculate the theoretical forward price and initial value
of the forward contract and explain the forward pricing relationship.
Provide numerical examples of arbitrage strategies for situations where a broker offers a
price above, and below the theoretical forward price.
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