Suppose there are three deliverable bonds in a Treasury Bond futures contract whose current cash prices (for
Question:
Suppose there are three deliverable bonds in a Treasury Bond futures contract whose current cash prices (for a face value of $100,000) and conversion factors are as follows:
(a) Bond 1: Price $98,750. Conversion factor 0.9814.
(b) Bond 2: Price $102,575. Conversion factor 1.018.
(c) Bond 3: Price $101,150. Conversion factor 1.004. The futures price is $100,625.
Which bond is currently the cheapest-to-deliver?
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Since the long position will pay the futures price of 100625 times the conversion factor in settle...View the full answer
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