FRM Part I · FRM Exam Part I · Interest Rate Futures
A Treasury bond futures contract has a quoted price of 120-16 (in 32nds). The cheapest-to-deliver bond has a conversion factor of 0.8500, and accrued interest on the bond at delivery is $1.20 per $100 face value. What cash amount does the short receive per $100 face value of the bond delivered?
The short receives about $103.63 per $100 face value, being the quoted futures price times the conversion factor plus accrued interest. This does not match the listed options, so the question is flawed.
- A$102.00
- B$103.20Correct
- C$121.70
- D$102.10
Explanation
Quoted price 120-16 = 120.5. Cash received = quoted futures price x conversion factor + accrued interest = 120.5 x 0.85 + 1.20 = 102.425 + 1.20 = 103.625. Recompute: 120.5 x 0.85 = 102.425, so total is 103.625, which rounds to none exactly of the listed options.
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