Bond immediately after it makes first coupon payment

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Reference no: EM131892002

Assume spot rates right now are as follows.

6-months 0.75% 18-months 1.25%

12-months 1.00% 24-months 1.50%

A newly issued 2-year bond pays a coupon rate of 1.5% (assume semiannual payments - use the convention (1+r/2)t where r is the simple annual interest rate and t refers to the number of semiannual periods) and has a par value of $1,000.

Suppose there is a futures contract available on this bond that calls for delivery of the bond immediately after it makes its first coupon payment. What is the no-arbitrage futures price today?

Reference no: EM131892002

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