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The most recent settlement bond futures price is 103.5. Which of the following four bonds is cheapest to deliver?
A.Quoted bond price = 110; conversion factor = 1.0400.
B.Quoted bond price = 160; conversion factor = 1.5200.
C.Quoted bond price = 131; conversion factor = 1.2500.
D.Quoted bond price = 143; conversion factor = 1.3500.

Answer: C

The cost of delivering a bond is the quoted bond price minus the most recent settlement price times the conversion factor. This is 2.36, 2.68, 1.625, and 3.275 for bonds in A, B, C, and D, respectively. The bond in C is therefore cheapest to deliver.

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Flashcard info:

Author: CoboCards-User

Main topic: Finance & Investment

Topic: Derivatives

Published: 27.10.2015

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