1. Suppose that, in a Treasury bond futures contract, it is known that the cheapest-to-deliver bond will be 10% coupon bond that pays the coupon semiannually and has a conversion factor of 1.250. Suppose also that it is known that the delivery will take place in 270 days. As illustrated in Figure 6.1, the last coupon date was 60 days ago, the next coupon date is in 122 days, and the coupon date thereafter is in 305 days. The term structure is flat, and the rate of interest (with continuous compounding) is 5.15% per annum. Assume that the current quoted bond price is 110-025. What should the quoted future price be?

Figure 6.1 Time chart for Example 6.2. Maturity of Coupon payment Current time Coupon payment futures Coupon contract payment 60 days 122 days 148 days 35 days Figure 6.1 Time chart for Example 6.2. Maturity of Coupon payment Current time Coupon payment futures Coupon contract payment 60 days 122 days 148 days 35 days