FRM Part I · FRM Exam Part I · Interest Rate Futures
A trader with a short position in Treasury bond futures delivers a bond. The most recent settlement price is 112.00 per $100 of face value, the bond's conversion factor is 1.2000, and accrued interest on the bond is 1.50 per $100 of face value. What cash does the short receive on delivery per $100,000 face value of the bond?
The short receives $135,900. Cash received equals the settlement price times the conversion factor plus accrued interest: 112.00 x 1.2 = 134.40, plus 1.50 gives 135.90 per $100 of face value. Scaled to $100,000 face value, this is $135,900.
- A$134,400
- B$135,900Correct
- C$94,833
- D$113,500
Explanation
Cash received = settlement price x conversion factor + accrued interest = 112.00 x 1.2000 + 1.50 = 135.90 per $100, so $135,900 per $100,000 face value. Omitting accrued interest gives $134,400, and dividing by the conversion factor gives $94,833; both are wrong.
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