4.The following table provides the quoted price and terms for three separate treasury bonds

Bond Quoted bond price Bond terms

1 $152 Time-to-maturity = 20 years

Coupon = 14% per annum (payable semi-annually)

2 $140 Time-to-maturity = 25 years

Coupon = 12% per annum (payable semi-annually)

3 $124 Time-to-maturity = 30 years

Coupon = 10% per annum (payable semi-annually)

The quoted futures price is $78.

(a) What are the conversion factors for the above three bonds?

(b) What is the cheapest-to-deliver bond?

5. The cheapest-to-deliver bond in a Treasury bond futures contract is a 13% coupon bond, and the delivery is expected to be made 62 days from today. Coupon payments on the bond are made every six months and the last coupon was made 177 days back. The next coupon is due 5 days from today and the coupon after that will be due 188 days from today. The annual risk-free rate is 11.65% per annum. The conversion factor for the bond is 1.5. The current quoted bond price is $110. Calculate the quoted futures price for the contract.

6.Company A, a British manufacturer, wishes to borrow U.S. dollars at a fixed rate of interest. Company B, a U.S. multinational, wishes to borrow sterling at a fixed rate of interest. They have been quoted the following rates per annum (adjusted for differential tax effects):

Sterling U.S. dollars

Company A 11.0% 7.0%

Company B 10.6% 6.2%

Design a swap that will net a bank, acting as intermediary, 10 basis points per annum and that will produce a gain of 15 basis points per annum for each of the two companies.