Question

10. What is the amount paid on a Treasury bond futures contract if the quote is 94-16?

Answer 1

Treasury bonds are loans to the government and bondholders are creditors of government. Government pays principal amount due at maturity plus the coupons at semi annual interval. These coupon bearing security are quoted in the percent of par to the nearest of 1/32nd of 1% of par. So, to find amount paid first we decide 16 by 32 which is 0.5 and we add back to 94 = 94.50. Hence, amount paid is 94.50% of the par value. Say if par value is $100,000, them amount paid will be $94,500.