Forward Price of a Treasury Bond

Consider a 5-year U.S. Treasury bond that is currently trading at a price of $1,000. It has a coupon rate of 3% paid semiannually. An investor believes that interest rates will rise over the next year and is considering entering into a forward contract to buy this bond in 1 year. The investor wants to determine the fair forward price for the bond.

To compute the fair forward price, the investor should take into account the present value of the bond's cash flows as well as the prevailing interest rates at the time of the transaction.