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Calculate the forward price

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Consider a long forward contract to purchase a coupon-bearing bond whose current price is £650. We will suppose that the forward contract matures in 9 months, and a coupon payment of £28 is expected after 4 months. We suppose that the 4-month and 9-month risk-free interest rates (continuously compounded) are 3% and 4% per annum.

a) Calculate the forward price.

b) Is there an arbitrage opportunity if the forward price is relatively low at £600? List the possible arbitrage actions for:

Reference no: EM132780572

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