Question
On January 30, 2002, the Teapot Company is considering two T-bonds as potential bonds for delivery against the June 2002 T-bond futures contract. The contract's
On January 30, 2002, the Teapot Company is considering two T-bonds as potential bonds for delivery against the June 2002 T-bond futures contract. The contract's current price is 102 8/32.
The first bond has a coupon rate of 7 14 percent and matures on May 15, 2026. It has a current market price of 105.00.
The second bond has a coupon rate of 5 34 percent and matures on May 15, 2024. It has a current market price of 87.00.
The June contract expires on June 15th and the settlement price on June 15th is 114.00. The reinvestment rate available to the Teapot Company is 5 percent. Determine which bond would be the cheapest-bond-to-deliver. Show all your calculations.
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Supply Chain Finance Solutions
Authors: Erik Hofmann, Oliver Belin
1st Edition
3642175651, 978-3642175657
