The futures price for the June 2005 CBOT bond futures contract is 118-23. (a) Calculate the conversion

Question:

The futures price for the June 2005 CBOT bond futures contract is 118-23.

(a) Calculate the conversion factor for a bond maturing on January 1, 2021, paying a coupon of 10%.

(b) Calculate the conversion factor for a bond maturing on October 1, 2026, paying a 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, what is the cash price received for the bond?

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