Question

On June 25,2017 , the futures price for the June 2017 bond futures contract is 118-23. (a) Calculate the conversion factor for a bond maturing on January 1, 2033, paying a coupon of $10 \%$. (b) Calculate the conversion factor for a bond maturing on October 1, 2038, paying a coupon of $7 \%$. (c) Suppose that the quoted prices of the bonds in (a) and (b) are 169.00 and 136.00 , respectively. Which bond is cheaper to deliver? (d) Assuming that the cheapest-to-deliver bond is actually delivered on June 25, 2017, what is the cash price received for the bond?

   On June 25,2017 , the futures price for the June 2017 bond futures contract is 118-23.
(a) Calculate the conversion factor for a bond maturing on January 1, 2033, paying a coupon of $10 \%$.
(b) Calculate the conversion factor for a bond maturing on October 1, 2038, paying a coupon of $7 \%$.
(c) Suppose that the quoted prices of the bonds in (a) and (b) are 169.00 and 136.00 , respectively. Which bond is cheaper to deliver?
(d) Assuming that the cheapest-to-deliver bond is actually delivered on June 25, 2017, what is the cash price received for the bond?

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 6, Problem 30

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Step 1

- The conversion factor is used to adjust the quoted price of a bond to reflect differences in coupon rates and maturities. It is calculated based on the assumption that the bond yields 6% per annum, compounded semi-annually. Show more…

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On June 25,2017 , the futures price for the June 2017 bond futures contract is 118-23. (a) Calculate the conversion factor for a bond maturing on January 1, 2033, paying a coupon of $10 \%$. (b) Calculate the conversion factor for a bond maturing on October 1, 2038, paying a coupon of $7 \%$. (c) Suppose that the quoted prices of the bonds in (a) and (b) are 169.00 and 136.00 , respectively. Which bond is cheaper to deliver? (d) Assuming that the cheapest-to-deliver bond is actually delivered on June 25, 2017, what is the cash price received for the bond?

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