On June 25, 2017, the futures price for the June 2017 bond futures contract is 118-23. a)

Question:

On June 25, 2017, the futures price for the June 2017 bond futures contract is 118-23.

a) Calculate the conversion factor for a bond maturing on January 1, 2033, paying a coupon of 10%.

b) Calculate the conversion factor for a bond maturing on October 1, 2038, paying coupon of 7%.

c) Suppose that the quoted prices of the bonds in (a) and (b) are 169.00 and 136.00, respectively. Which bond is cheaper to deliver?

d) Assuming that the cheapest to deliver bond is actually delivered on June 25, 2017, what is the cash price received for the bond?

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...