For this question, why are they not adding and subtracting the accrued interest? I thought you would add the AI to the spot price of the bond for the 32 days prior to t=0 and subtract the AI for the 50 days after the interest payment prior to T=200. What am I missing?
Calculate the price of a 200-day forward contract on an 8%, semi-annual, U.S. Treasury bond with a spot price of $1,310. Next coupon payment will be made in 150 days. The annual risk-free rate is 5%.
The explanation with answer is:
Coupon = (1,000 × 0.08) / 2 = $40.00
Present value of coupon payment = $40.00 / 1.05^(150/365) = $39.21
Forward price on the fixed income security = ($1,310 - $39.21) × (1.05)^200/365 = $1,305.22