Question 2

Find the price of a forward contract with maturity of 2 (T=2) years. The underlying asset is a 2 year (T =4) annual-coupon bond with coupon rate 2%. You are given the following term structure: R(0, 1) = 2%, R(0, 2) = 2.5%, R(0, 3) = 2.9%, and R(0, 4) = 3.2%.

a) $96.2737

b) $100.0510

c) $94.4238

d) $108.5004

---

Part 2

Compute the dirty bond price. Consider a bond with ten years to maturity that pays a semi-annual coupon of $100 per year. The quoted price of this bond on the Bloomberg terminal is currently $1000. The last time that this bond issued a coupon payment was 108 days ago. Assume that there are 360 days per year. What is the current dirty bond price?

a) $1020

b) $1030

c) $1050

d) $1060

e) $1080