An expiring 12 month long forward contract to purchase a coupon-bearing bond Bond has current cost of

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An expiring 12 month long forward contract to purchase a coupon-bearing bond

Bond has current cost of $1000

First 3 months has 40 dollar coupon payment

Next 6 months has 50 dollar coupon payment

Risk free rate per annum = 5% continuous compounding for all maturities

Calculate forward price theoretically

Does an arbitrage chance show itself if the real forward price is $900.

How can this create the arbitrage profit with each step and calculate the arbitrage profit?

Related Book For answer-question

Advanced Accounting

ISBN: 978-0077431808

10th edition

Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik

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Posted Date: Apr 03, 2023 12:56 AM

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An expiring 12 month long forward contract to purchase a coupon-bearing bond Bond has current cost of

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To calculate the theoretical forward price we need to calculate the present value of the bonds futur... View the full answer

Advanced Accounting

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