CH15 - 15-1Chapter 15Bond Futures15-2Treasury Bond...

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Unformatted text preview: 15-1Chapter 15Bond Futures15-2Treasury Bond FuturesDelivery dateat least 15 yearsn\$100,000 par per contract15-3There are many deliverable bonds. This prevents anyone from buying up all the deliverable bonds (cornering the market) and manipulating prices.But it adds a complication. The value of each bond in delivery must be specified by some formula.The “cheapest to buy” is the bond that would cost the least to buy and deliver. The cheapest to deliver sets the price of the futures contract.Cheapest to Deliver15-4Quoting Treasury Bond FuturesQuoted per \$100 par in 32nds. Thus, .25.31)1000(32125.531,99\$)1000(3217000,991799==+=-15-5Computing Changes in Futures Quotes❚Transform to dollars and cents:99 – 17 = 99,531.25– 99 – 15 = 99,468.75\$62.50❚Compute the change in 32ndsand multiply by \$31.25:99 – 17– 99 – 152 ×31.25 = \$62.5015-6Futures Price on the Delivery Date Converges to the Spot Price on the Delivery Date.Delivery Date....
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This note was uploaded on 06/07/2011 for the course FIN 4243 taught by Professor Dudley during the Spring '08 term at University of Florida.

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CH15 - 15-1Chapter 15Bond Futures15-2Treasury Bond...

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