It is February 27, 2018. The futures price for the June 2018 Treasury bond futures contract is 118-23.
(a) Calculate the conversion factor for a bond maturing on January 1, 2037,paying a coupon of10%.
(b) Calculate the conversion factor for a bond maturing on October 1, 2042,paying coupon of7%.
(c) Suppose that the quoted prices of the bonds in (a) and (b) are 169.00 and136.00, respectively. Which bond is cheaper to deliver?
(d) Assuming that the cheapest to deliver bond is actually delivered on June25, 2018, what is the cash price received on delivery of the bond?