CT1 CHAPTER 13 cmp notes page 11

Hi everyone, the question says:

a fixed interest security pays coupons of 8% pa half yearly in arrear and is redeemable at 110%. two months before the next coupon is due, a investor negotiates a forward contract in which he agrees to buy a 60,000 pounds nominal of the security in 6 months time. the current price of the stock is 80.40 per 100 nominal and the risk free force of interest is 5% pa.

calculate the forward price.

in the notes, i dont understand why we divide 60,000 by 100 in the answer?

if you could help with the whole thing that would be great

 

It is because we are given the price of security per £100 nominal. And the total amount the investor invests is £60000. So, the no. of units (s)he has 60000/100 =600. We are just calculating the forward price for 1 unit and then multiplying it by total no. of units the investor holds i.e.600 units.

 

thank you very much Bharti!