One month ago, an investor entered into a forward agreement to sell a bond in three months'

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One month ago, an investor entered into a forward agreement to sell a bond in three months' time at a price of $100. The current spot price for the bond is $101.50.

Suppose the term structure of interest rates is such that the 1-month spot rate is 2%, the 2-month spot rate is 4% and the 3-month spot rate is 6%. Assume all interest rates are based on continuous compounding.

What is the value of the investor's position assuming the bond does not pay a coupon?

Suppose instead the bond pays a 5% coupon and the next coupon payment is one month from today.

In that event, What is the value of the investor's position?

Related Book For answer-question

Intermediate Accounting Volume 2

ISBN: 9780135220498

4th Edition

Authors: Kin Lo, George Fisher

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Posted Date: Mar 20, 2023 03:48 AM

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One month ago, an investor entered into a forward agreement to sell a bond in three months'

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Without coupon payment To value the forward agreement we need to calculate the f... View the full answer

Intermediate Accounting Volume 2

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