Example 4 (Conversion factor) CF=PV-AC PV is the present value at maturity date of the future...

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Example 4 (Conversion factor) CF=PV-AC PV is the present value at maturity date of the future contract of the actual asset discounted at rate r AC is the amount of the accrued interest of the same asset Consider a 1-year future contract whose underlying asset is a fictitious 10-year maturity bond with a 6% annual coupon rate. Suppose that the asset to be delivered is at date 10 a 10-year maturity bond with a 5% annual coupon rate whose accrued interest is 2% of the nominal amount. Example 4 (Conversion factor) CF=PV-AC PV is the present value at maturity date of the future contract of the actual asset discounted at rate r AC is the amount of the accrued interest of the same asset Consider a 1-year future contract whose underlying asset is a fictitious 10-year maturity bond with a 6% annual coupon rate. Suppose that the asset to be delivered is at date 10 a 10-year maturity bond with a 5% annual coupon rate whose accrued interest is 2% of the nominal amount.