Company XYZ conducts treasury futures arbitrage. Information pertinent to the T-bond futures and the underlying bonds...
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Company XYZ conducts treasury futures arbitrage. Information pertinent to the T-bond futures and the underlying bonds are shown below. • Current date & repo rate: May 25, 2021, repo rate = 10% per year ⚫ T-bond futures: The settlement price of the December 2021 T-bond futures on May 25 is 70-00. The target delivery date is December 15, 2021. Underlying T-bonds: Bond Maturity Coupon Price Conversion Factor Conversion Factor Bond Maturity Coupon Price A May 15, 2041 7.5 81-00 1.20 B May 15, 2041 6.5 78-00 1.05 (Note: Both bonds pay semiannual coupon interest on May 15 and November 15; the Nov.-May half- year has 181 days, and the May-Nov. half-year has 184 days). • Identify T-bond futures arbitrage opportunities, design arbitrage strategies, and show how much will be the expected arbitrage profits. To do so, you need to compare the invoice prices and the forward prices for both bonds (A and B),and identify the bond(s) that produce arbitrage profits. Do not forget to include appropriate accrued interests in your calculations. Company XYZ conducts treasury futures arbitrage. Information pertinent to the T-bond futures and the underlying bonds are shown below. • Current date & repo rate: May 25, 2021, repo rate = 10% per year ⚫ T-bond futures: The settlement price of the December 2021 T-bond futures on May 25 is 70-00. The target delivery date is December 15, 2021. Underlying T-bonds: Bond Maturity Coupon Price Conversion Factor Conversion Factor Bond Maturity Coupon Price A May 15, 2041 7.5 81-00 1.20 B May 15, 2041 6.5 78-00 1.05 (Note: Both bonds pay semiannual coupon interest on May 15 and November 15; the Nov.-May half- year has 181 days, and the May-Nov. half-year has 184 days). • Identify T-bond futures arbitrage opportunities, design arbitrage strategies, and show how much will be the expected arbitrage profits. To do so, you need to compare the invoice prices and the forward prices for both bonds (A and B),and identify the bond(s) that produce arbitrage profits. Do not forget to include appropriate accrued interests in your calculations.
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To identify Tbond futures arbitrage opportunities we need to compare the invoice prices and the forward prices for both bonds A and B and see if there ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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