Assume that you have sold a 10 year futures contract with a price of 105-23 (105+15/32) = $105.46875.

The following bonds are available to deliver:

Bond 1: $100 par; coupon = 8%; time to maturity: 7 years; YTM: 5% Bond 2: $100 par; coupon = 5%; time to maturity: 6.5 years ; YTM: 4.5% Bond 3: $100 par; coupon = 9%; time to maturity: 9 years; YTM: 6% Bond 4: $100 par; coupon = 10%; time to maturity: 8 years: YTM: 5.5% Bond Price as a decimal Conversion Factor 1 $117.54 1.1130 2 $102.79 0.9468 3 $120.63 1.2063 4 $128.81 1.2512 For each bond, calculate the gain or loss from delivering it against the futures contract

Bond 1 gain or loss: ______ a) loss of $ 0.15 b) gain of $ 0.15 c)loss of $ 25.34 d) gain of $25.34

Bond 2 gain or loss: ______ a) loss of $ 8.14 b) gain of $ 8.14 c)loss of $ 2.93 d) gain of 2.93

Bond 3 gain or loss: ______ a) loss of $ 6.60 b) gain of $ 6.60 c)loss of $ 40.05 d) gain of $ 40.05

Bond 4 gain or loss: a) loss of $ 55.70 b) gain of $ 55.70 c)loss of $ 3.15 d) gain of $ 3.15

Which bond should you choose to deliver? a) bond 1 b) bond 2 c) bond 3 d) bond 4