Q:"price of a bond forward on the coupon date "?

CFA Level I
#1

4Q- 95 If the coupon rate of a bond is higher than its yield to maturity, the price of a bond forward on the coupon date of this coupon-bearing bond will be equal to: A. par value. B. spot value. C. less than par value. D. more than par value. my guess: D premium bond

#2

I think that if the coupon is higher than yield then the bond will always be trading at a premium (D.)

#3

D

#4

D for me too. The bond should be trading at premium since the coupon rate is higher than the Ytm…

#5

Can somebody explain how is the relation with bond forward? S

#6

Bond is premium, thus > par Bond forward price is even higher. E.g. 90 days forward on 90-day T-bill worths more than 180-day T-bill.

#7

What does this question mean? The yield curve is pretty steep so an 8% coupon risk free bond maturing 5 yrs from now is selling at a premium. a) is the yield curve is flat for the first week is the forward price in one week greater than or less than par? (ans > par) b) If the 4.5 year forward 6 month rate is an annualized 12% is the 4.5 year forward rate greater or less than par (ans < par).

#8

JoeyDVivre Wrote: ------------------------------------------------------- > What does this question mean? > > The yield curve is pretty steep so an 8% coupon > risk free bond maturing 5 yrs from now is selling > at a premium. > > a) is the yield curve is flat for the first week > is the forward price in one week greater than or > less than par? (ans > par) > > b) If the 4.5 year forward 6 month rate is an > annualized 12% is the 4.5 year forward rate > greater or less than par (ans < par). the question states that the coupon is higher then the YTM, so how does statement (b) comply? I think the point of this question is to illustrate that holding market rates constant that a premium bond at issuance will remain a premium bond until right before maturity (the price will decline each year as the premium amortizes to par)

#9

bump… joey? thoughts?

#10

I guess I’m not sure what you mean by “interest rates stay the same”. Do you mean that spot interest rates in the future are the same as their forward rates now or that the term structure of interest rates in the future are the same as they are now? Anyway, imagine some ridiculous term structure of interest rates where spot rates are 0 for the next 4.5 years and then whatever they have to be for 5 yrs to get the forward rate to 12%. An 8% bond is a premium bond. After the penultimate coupon payment, it’s expected to be a discount bond because the holder will be getting 104 in 6 months instead of the going rate of 106. I would be paying a premium for this bond because I want the early coupon payments but the forward contract could be on the principal and the last coupon payment.

#11

i meant the term structure of interest rates in the future are the same… i understand this example better. thx