Question
A government bond futures contract allows for the delivery of multiple bonds and has 90 days (3 months) until expiration. Suppose the underlying government bond
A government bond futures contract allows for the delivery of multiple bonds and has 90 days (3 months) until expiration. Suppose the underlying government bond has a quoted (flat) price of $107.74 and a conversion factor of 0.8689. The bond has an annual coupon rate of 4% (coupons paid semiannually) and 45 days have elapsed since the last coupon payment, making the current accrued interest is $0.50. At contract expiration, the accrued interest on the bond will be $1.50. The appropriate annually compounded risk-free rate is 1%. What is the no-arbitrage quoted futures price for the 3-month contract?
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