HullOFOD8eSolutionsCh06
CHAPTER 6
Interest Rate Futures
Practice Questions
Problem 6.1.
A U.S. Treasury bond pays a 7% coupon on January 7 and July 7. How much interest accrues per $100 of principal to the bond holder between July 7, 2011 and August 9, 2011? How would your answer be different if it were a corporate bond?
There are 33 calendar days between July 7, 2011 and August 9, 2011. There are 184 calendar days between July 7, 2011 and January 7, 2011. The interest earned per $100 of principal is therefore . For a corporate bond we assume 32 days between July 7 and August 9, 2011 and 180 days between July 7, 2011 and January 7, 2011. The interest earned is .
Problem 6.2.
It is January 9, 2013. The price of a Treasury bond with a 12% coupon that matures on October 12, 2020, is quoted as 102-07. What is the cash price?
There are 89 days between October 12, 2012, and January 9, 2013. There are 182 days between October 12, 2012, and April 12, 2013. The cash price of the bond is obtained by adding the accrued interest to the quoted price. The quoted price is or 102.21875. The cash price is therefore
Problem 6.3.
How is the conversion factor of a bond calculated by the CME Group? How is it used?
The conversion factor for a bond is equal to the quoted price the bond would have per dollar of principal on the first day of the delivery month on the assumption that the interest rate for all maturities equals 6% per annum (with semiannual compounding). The bond maturity and the times to the coupon payment dates are rounded down to the nearest three months for the purposes of the calculation. The conversion factor defines how much an investor with a short bond futures contract receives when bonds are delivered. If the conversion factor is 1.2345 the amount investor receives is calculated by multiplying 1.2345 by the most recent futures price and adding accrued interest.
Problem 6.4.
A Eurodollar futures price changes from 96.76 to 96.82. What is the gain or loss to an
Interest Rate Futures
Practice Questions
Problem 6.1.
A U.S. Treasury bond pays a 7% coupon on January 7 and July 7. How much interest accrues per $100 of principal to the bond holder between July 7, 2011 and August 9, 2011? How would your answer be different if it were a corporate bond?
There are 33 calendar days between July 7, 2011 and August 9, 2011. There are 184 calendar days between July 7, 2011 and January 7, 2011. The interest earned per $100 of principal is therefore . For a corporate bond we assume 32 days between July 7 and August 9, 2011 and 180 days between July 7, 2011 and January 7, 2011. The interest earned is .
Problem 6.2.
It is January 9, 2013. The price of a Treasury bond with a 12% coupon that matures on October 12, 2020, is quoted as 102-07. What is the cash price?
There are 89 days between October 12, 2012, and January 9, 2013. There are 182 days between October 12, 2012, and April 12, 2013. The cash price of the bond is obtained by adding the accrued interest to the quoted price. The quoted price is or 102.21875. The cash price is therefore
Problem 6.3.
How is the conversion factor of a bond calculated by the CME Group? How is it used?
The conversion factor for a bond is equal to the quoted price the bond would have per dollar of principal on the first day of the delivery month on the assumption that the interest rate for all maturities equals 6% per annum (with semiannual compounding). The bond maturity and the times to the coupon payment dates are rounded down to the nearest three months for the purposes of the calculation. The conversion factor defines how much an investor with a short bond futures contract receives when bonds are delivered. If the conversion factor is 1.2345 the amount investor receives is calculated by multiplying 1.2345 by the most recent futures price and adding accrued interest.
Problem 6.4.
A Eurodollar futures price changes from 96.76 to 96.82. What is the gain or loss to an