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You have a short position in a Treasury bond futures contract, with delivery taking place in 45 days. The cheapest bond to deliver is a
You have a short position in a Treasury bond futures contract, with delivery taking place in 45 days. The cheapest bond to deliver is a 7% annual coupon bond (with coupons paid semiannually) with 16 years and 4 months left to maturity. The bond's current quoted price is $110. The last coupon date on the bond was 140 days ago, and the upcoming coupon is in 42 days; the next coupon follows another 183 days after that. The term structure is flat for all maturities, with r = 4% per annum (in continuous compounding). r (i) What is the conversion factor for the cheapest-to-deliver bond? (ii) What is the current cash price of the cheapest-to-deliver bond? (iii) What should be the current cash price of the futures contract, if it were written on this bond? (iv) What would be the current futures quoted price, given this cheapest-to-deliver bond (provide answer both with and without the right quoting convention)? You have a short position in a Treasury bond futures contract, with delivery taking place in 45 days. The cheapest bond to deliver is a 7% annual coupon bond (with coupons paid semiannually) with 16 years and 4 months left to maturity. The bond's current quoted price is $110. The last coupon date on the bond was 140 days ago, and the upcoming coupon is in 42 days; the next coupon follows another 183 days after that. The term structure is flat for all maturities, with r = 4% per annum (in continuous compounding). r (i) What is the conversion factor for the cheapest-to-deliver bond? (ii) What is the current cash price of the cheapest-to-deliver bond? (iii) What should be the current cash price of the futures contract, if it were written on this bond? (iv) What would be the current futures quoted price, given this cheapest-to-deliver bond (provide answer both with and without the right quoting convention)
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