Suppose there is a futures contract available on this bond


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?

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Financial Management: Suppose there is a futures contract available on this bond
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