Based on the information given, what initial price should Lewis recommend for a forward contract on

Monica Lewis, CFA, has been hired to review data on a series of forward contracts for a major client. The client has asked for an analysis of a contract with each of the following characteristics:

A forward contract on a U.S. Treasury bond

A forward rate agreement (FRA)

A forward contract on a currency

Information related to a forward contract on a U.S. Treasury bond: The Treasury bond carries a 6 percent coupon and has a current spot price of $1,071.77 (including accrued interest). A coupon has just been paid and the next coupon is expected in 183 days. The annual risk-free rate is 5 percent. The forward contract will mature in 195 days.

Information related to a forward rate agreement: The relevant contract is a 3 x 9 FRA. The current annualized 90-day money market rate is 3.5 percent and the 270-day rate is 4.5 percent. Based on the best available forecast, the 180-day rate at the expiration of the contract is expected to be 4.2 percent.

Information related to a forward contract on a currency: The risk-free rate in the U.S. is 5 percent and 4 percent in Switzerland. The current spot exchange rate is $0.8611 per Swiss France (SFr). The forward contract will mature in 200 days.

Part 1)

Based on the information given, what initial price should Lewis recommend for a forward contract on the Treasury bond？

A)$1,035.12.

B)$1,073.54.

C)$1,053.66.

D)$1,070.02.