Explain why the implied repo rate is important in determining the cheapest-to-deliver issue.
Answer to relevant QuestionsA manager wishes to hedge a bond with a par value of $20 million by selling Treasury bond futures. Suppose that (1) the conversion factor for the cheapest-to-deliver issue is 0.91, (2) the price value of a basis point of the ...How could a portfolio manager use a Treasury bond futures contract to hedge against increased interest rates over the next quarter? What does it mean if the cost of carry is positive for a Treasury bond futures contract? Does it make sense for an investor who wants to speculate on interest-rate movements to purchase an over-the-counter option? Determine the price of a European put option on a 6.5% four-year Treasury bond with a strike price of 100.25 and two years to expiration assuming the same information as in Exhibit 30-10.
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