The cheapest-to-deliver bond in a Treasury bond futures contract is a 5% coupon bond, and delivery...

The cheapest-to-deliver bond in a Treasury bond futures contract is a 5% coupon bond, and delivery is
expected in 250 days. Coupon payments on the bond will be made in 175 days and 357 days from now.
The last coupon date was 9 days ago. The rate of interest with continuous compounding is 2.5% per
annum for all maturities (i.e. term structure is flat). The conversion factor for the bond is 0.9904. The
current quoted bond price is $125. Calculate the quoted futures price for the contract (i.e. settlement
price of futures contract).

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Expert Solution

Have a look at the handouts attached above for the detailed explanation of the solution to this question.

Rahul Sunny answered 1 year ago

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