A 5 Year Bond With A 4 45 Coupon Sells For 107 A 7 Year Bond With A 5 75 Coupon

. A 5-year bond with a 4.45% coupon sells for $107.48.  A 7-year bond with a 5.75% coupon sells for 116.564.   The conversion factor for the 5-year bond is 0.933891 while the 7-year bond is 0.98588. Assume that the yields for both bonds are 6% and that coupon payments are semiannual. Which of the two bonds is cheaper to deliver given a T-note futures price of 117.92?

Answer:5 Yr BondBond ValueConversion FactorBond deliveryMarket PriceCost to deliver bonds 7 Yr Bond 1000.93107.08107.48115.09 Tha above calculation suggests that 5 year bond is cheaper…

Prof. Angela


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