Today is July 1. You hold a November Treasury bond futures contract with a price of 92:15
Question:
Today is July 1. You hold a November Treasury bond futures contract with a price of 92:15 (i.e., 92 plus [15/32]), with a delivery date of November 15 in the same year. You have identified the two bonds below that could be used for delivery against the futures contract:
Bond A | Bond B | |
Maturity | 26.5 years | 31 years |
Coupon rate | 5% | 8.5% |
Asking price | 93:2 | 144:13 |
Coupon dates | April 15, October 15 | June 15, December 15 |
Callable? | No | No |
Assume that the next year is not a leap year, and that the market repo rate is 5.50%.
a. Find the conversion factors for Bond A and Bond B. Use the downloadable Excel spreadsheet on the Chicago Mercantile Exchange (CME) website: http://www.cmegroup.com/trading/interest-rates/us-treasury-futures-conversion-factor-lookup-tables.html.
b. Identify the cheapest-to-deliver bond.
Financial Institutions Management A Risk Management Approach
ISBN: 978-0071051590
8th edition
Authors: Marcia Cornett, Patricia McGraw, Anthony Saunders