Consider a forward contract to deliver, In two years' time, a two- year coupon bond with a face value of $100 and a coupon rate of 10% . The
forward price F will be paid in year 2 while the bond payments occur in years 3 and 4 . The current term structure of Interest rates is given by : r,
= 6% r2 = 5%, 53 = 4.5% and ry = 4% . Using a replicating portfolio approach, find the no- arbitrage forward price F

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Answer To find the noarbitrage forward price we need to create a replicating portfolio that will gen... View the full answer