What is the theoretical futures prices

Reference no: EM132967268

Question: Suppose that bond ABC is the underlying asset for a futures contract with settlement six months from now. You know the following about bond ABC and the futures contract: (1) In the cash market ABC is selling for $80 (par value is $100); (2) ABC pays $8 in coupon interest per year in two semiannual payments of $4, and the next semiannual payment is due exactly six months from now; and (3) the current six month interest rate at which funds can be loaned or borrowed is 6%

A. What is the theoretical futures prices

B. What action would you take if the futures price is $83?

Reference no: EM132967268

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