You currently have a short position, agreeing to sell a US treasury bond, in the future market. The contract matures today and you are considering buying two different bonds in the spot market to deliver (sell) to honor your contract.

Bond A has 6 years and 2 months left before it matures. It makes semiannual coupon payments and has a coupon rate of 8%, par value of 100, and a current price of 118.46

Bond B has 7 years and 4 months left before it matures. It makes semiannual coupon payments and has a coupon rate of 9%, par value of 100 and a current price of 118.86

The current future price is 105.00. Which of the two bonds would be the cheapest bond to deliver in the futures market (calculate the conversion factor for both, then determine which is the cheapest to deliver).

(10 points)

Months	Zero-Coupon Rate
6	0.8%
12	1%
18	1.4%
24	1.8%
30	2%
36	2.4%
42	2.8%
48	3%