FRM Part I · FRM Exam Part I · Futures Markets
A Treasury bond futures contract has a settlement price of 110.00 and the cheapest-to-deliver bond has a conversion factor of 0.9000. What is the cash received by the short party per USD 100 face value on delivery, ignoring accrued interest?
The short party receives USD 99.00 per USD 100 face value. Delivery proceeds equal the settlement price multiplied by the bond's conversion factor, so 110 times 0.90 equals 99, before adding accrued interest, which the question excludes.
- AUSD 110.00
- BUSD 99.00Correct
- CUSD 122.22
- DUSD 100.00
Explanation
Cash received = futures settlement price x conversion factor (plus accrued interest, which is ignored here). 110.00 x 0.9000 = 99.00. Dividing by the conversion factor (122.22) is the wrong operation.
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