Question: QUESTION 3 : (15 Marks) (11 marks) It is December 2, 2018 and you are calculating the cheapest to deliver (CTD) T. Bond for the

QUESTION 3: (15 Marks)

  1. (11 marks) It is December 2, 2018 and you are calculating the cheapest to deliver (CTD) T. Bond for the March (2019) future T. Bond contract which is currently quoted at $112. Show the CTD calculations for the 7.25% coupon (semi annual payment) T. Bond maturing on August 15, 2035, selling for $127.75 with a conversion factor (C.F.) of 1.1285. Use March 7, 2019 as your planned delivery date and a 4% p.a. interest rate.
  2. (4 marks) Calculate the change to your answer in (a) if the settlement future T. Bond price on March 7 is $114.
  3. (bonus 2 marks) Calculate the yield to maturity for the 7.25% coupon T. Bond in (a) on December 2, 2018.
  4. (bonus 2 marks) Show how the C.F. in (a) is calculated.

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