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FRM Part I · FRM Exam Part I · Interest Rate Futures

A Treasury bond futures contract (face value 100,000) is quoted at 120-00. The conversion factor of the cheapest-to-deliver bond is 0.8500, and its accrued interest at delivery is 1.20 per 100 of face value. What cash amount does the short receive per contract on delivery, ignoring any other adjustments?

The short receives $103,200. The cash price is the quoted futures price times the conversion factor, 120 × 0.85 = 102, plus accrued interest of 1.20, giving 103.20 per 100 of face value. Omitting the conversion factor or accrued interest gives the wrong figures.

  1. A$102,000
  2. B$103,200Correct
  3. C$121,200
  4. D$142,392

Explanation

Cash received = (quoted futures price × conversion factor) + accrued interest = 120 × 0.85 + 1.20 = 103.20 per 100, so $103,200 per 100,000 face. $102,000 omits accrued interest, $121,200 ignores the conversion factor, and $142,392 divides by the factor instead of multiplying.

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