MGTC71-5 - MGTC71-Lecture 5 Interest Rate Futures Ata...

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1 MGTC71-Lecture 5 Interest Rate Futures Ata Mazaheri
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2 Day Count Conventions in the U.S. Treasury Bonds: Actual/Actual (in period) Corporate Bonds: 30/360 Money Market Instruments: Actual/360
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3 Characteristics of U.S. Treasury Bills A 182-day T-bill has an ask discount of 5.30 percent. The par value is $10,000. What is the price of the T-bill? What is the yield of this T-bill on a bond equivalent basis? Days to maturity Discount amount = Face value ( ) Ask discount 360 182 $10,000 ( ) 0.053 360 $267.94 × × = × × =
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4 Characteristics of U.S. Treasury Bills T-bill price = Face value - Discount amount $10,000 $267.94 $9,732.06 = - = Discount amount 365 Bond equivalent yield Discount price Days to maturity $267.94 365 $9,732.06 182 5.52% = × = × =
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5 Treasury Bond Price Quotes in the U.S Cash price = Quoted price + Accrued Interest
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6 Treasury Bond Spots Quotations The prices for these securities [almost same maturity], are highly variable. Why ?
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7 Treasury Bond Futures Contracts A bond futures contract allows you to take a long or short position in a class of bonds, like U.S.Treasury Bonds. Quotes are in 32nds. IMPORTANT: Can be settled by the delivery of any bond with more than 15 years to maturity.
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8 Treasury Bond Futures Contracts For traditional reasons, bonds are quoted in 32nds instead of decimals. For later calculations, bonds and futures prices must be converted to decimals. Settlement: The smallest "tick" (price movement allowed) in bonds and bond futures is 1/32 per 100 par. Therefore, given that the CBOT bond futures contract is for $100,000, a movement of one tick ( 1/32nd ) impacts settlement by
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This note was uploaded on 07/20/2011 for the course MGMT 71 taught by Professor Mazaheri during the Spring '11 term at University of Toronto.

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MGTC71-5 - MGTC71-Lecture 5 Interest Rate Futures Ata...

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