Calculating the price of a forward contract on a fixed income security

CFA Level II
#1

Question :

Calculate the price of a 250 day forward contract on a 7% US treasury bond with a spot price of 1050 ( including accrued interest) that has just paid a coupon and will make another coupon payment in 182 days. Rf = 6%

Solution:

they reduce the spot price by the present value of the dividend [1050 - 35/((1.06)^180/365)] and then load this amount up by risk free interest for 250 days.

why isnt the accrued interest that will be generated for 182-250 days period accounted for. I think the forward should be priced more than this to account for that period since we will be getting coupon ealier on.

#2

Hi - I just found this post when I was looking for something related to this, and you may have found the answer for this already. From my understanding, we are not considering the accrued interest for period of 182 to 250 because the spot price (the dirty price that is inclusive of the accrued interest) accounts only for the accrued interest of the next coupon which is due. You only accrue between the coupon payment dates

Cheers!

S

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