Question

It is July 30, 2019. The cheapest-to-deliver bond (for a September 2019 Treasury bond futures contract) is a 6% coupon bond, and delivery is expected to be made on September 30, 2019. Coupon payments on the bond are made on February 30 and August 30 each year. The term structure is flat, and the discount rate with semiannual compounding is 4% per annum. The conversion factor for the bond is 1.5. The current quoted bond price is $105. Calculate the quoted futures price for the contract. Please explain your answer

Answer 1

Given information follows below

Treasury bond futures contract Coupon bond = 6%.

Discount rate with semiannual compounding is = 4%.

The conversion factor for the bond is= 1.5.

The current quoted bond price is = $105

Calculating the quoted futures price for the contract

current quoted bond price + interest earned) *conversion factor for the bond

=$105+ 0.5 *1.5

= $158.25

Note : Interest earned calculated 6% - 4% = 0.5

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