Company XYZ conducts treasury futures arbitrage. Information pertinent to the T-bond futures and the underlying bonds...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
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.
Expert Answer:
Answer rating: 100% (QA)
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:
Students also viewed these finance questions
-
For each problem, show your work steps. A correct answer with no work shown gets half credit (which means you fail the assignment). An incorrect answer with no work receives 0 credit. With time value...
-
Managing Scope Changes Case Study Scope changes on a project can occur regardless of how well the project is planned or executed. Scope changes can be the result of something that was omitted during...
-
State Einstein's postulates of the special theory of relativity. ii. Write down Einstein's mass-energy equivalence formula. iii. In the case of two inertial frames of reference, S' moving at a...
-
Tessa's Techs is a small, competitive firm that provides online and telephone support for people with computer problems. The marginal product of labor (measured in numbers of support requests...
-
In infrared spectra, the carbonyl group is usually indicated by a single strong and sharp absorption. However, in the case of carboxylic acid anhydrides, two peaks are observed even though the two...
-
In a 1975 contract, Eureka was given the exclusive right to sell spring water and other products under the Ozarka trade name in 60 Oklahoma counties in exchange for \($9,000\) paid to Arrowhead,...
-
(Amortization of Accumulated OCI (G/L), Corridor Approach, Pension Expense Computation) The actuary for the pension plan of Gustafson Inc. calculated the following net gains and losses. Other...
-
Why is the relational model more important above the other models?
-
On January 1, 2023, Pulaski, Incorporated, acquired a 60 percent interest in the common stock of Sheridan, Incorporated, for $392,400. Sheridan's book value on that date consisted of common stock of...
-
(a) Consider an attractive spherical-well potential: V(x) = r < R and Vir) - 0, otherwise. Compute the a-wave phase shifts and -Vo for the scattering cross-sections for a particle of mass m in the...
-
The Canadian Restaurant Association states that the restaurant industry has an economic effect of more than $1.7 trillion annually, with every dollar spent in restaurants generating an estimated...
-
The next two questions are about interacting with people during COVID. When we encounter another person these days, we would like to know how likely it is that they have COVID-19 before we get too...
-
Macy's, long a leading department store in the United States, is trying a variety of new tactics to attract shoppers to its stores in the face of a sales decline. This activity is important because...
-
Provide two methods of developing environmental sustainability plans by providing an outline of how to implement each method. Method 1 Method 2
-
The Big Choo Choo Company (BCCC) owns a rail line from the town of Isolated to the coastal port of Notso. It cost them $20 million to build the rail line in 2016. It is now 2023. The Small Gold...
-
#4 Derek went through a process of socialization in his beliefs, ideas and perceptions about black people. What were some things that initially influenced these beliefs? Derek also went through a...
-
For what reason might an exporter use standard international trade documentation (letter of credit, draft, order bill of lading) on an intrafirm export to its parent or sister subsidiary?
-
Sophie is a single taxpayer. For the first payroll period in October 2012, she is paid wages of $3,250 monthly. Sophie claims three allowances on her Form W-4. a. Use the percentage method to...
-
Lisa Sizemore, a taxpayer in the 10-15 percent tax bracket, purchased stock as an investment on July 11, 2011. She sold the stock on July 9, 2012, 2 days before qualifying for the long-term holding...
-
The following additional information is available for the Dr. Ivan and Irene Incisor family. Ivan and Irene have the following investment income, in addition to that reported in Chapter 1: Dividends...
-
If a person has a highly elastic demand, will he likely bear a large or small percentage of the burden of a tax?
-
Minneapolis Federal Reserve Bank economist Edward Prescott estimates the elasticity of the U.S. labor supply to be 3. Given this elasticity, what would be the impact of funding the Social Security...
-
How much of a $100 tax would a consumer pay if elasticity of demand is 0.2 and elasticity of supply is 1.8?
Study smarter with the SolutionInn App