Question
Suppose it is known that the cheapest-to-deliver bond will be a 10% coupon bond with a conversion factor of 1.4623. Suppose also that the delivery
Suppose it is known that the cheapest-to-deliver bond will be a 10% coupon bond with a conversion factor of 1.4623. Suppose also that the delivery will take place in 265 days (=0.7260 years). Coupons are payable semiannually on the bond. The last coupon was paid 40 days ago, the next coupon is due in 142 days (=0.3890 years), and the coupon date thereafter is in 325 days. The term structure is flat, and the rate of interest (with continuous compounding) is 8% per annum. Assume that the current quoted bond price is $120. Find the equilibrium cash futures price today using the parity condition.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started