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FIN4520-Chapter6

FIN4520-Chapter6 - Interest Rate Futures Chapter 6 1...

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Interest Rate Futures Chapter 6 1
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Interest Rate Futures These contracts are offered on many assets whose prices are determined by interest rates. T-bonds (and notes) T-bills Eurodollars 2
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Day Count Conventions There are 3 day count conventions used in the U.S. These conventions define how much interest is earned. Treasury bonds: Actual/actual Corporate bonds: 30/360 Here we assume 30 days each month and 360 days per year (e.g., # days from January 1 to June 30 is 180). T-bills and Money Market Instruments: Actual/360 Here we take the actual number of days divided by 360 (rather than 365). 3
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Treasury Bond Price Quotes in the U.S Cash price = Quoted price + Accrued Interest 4
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T-bond Pricing Example: Text Problem 6.2 The bond will pay interest on 4/12 and 10/12. Interest accrued from 10/12 to 1/9 or 89 days. Oct. 19, Nov. 30, Dec. 31, + Jan. 9 days There are 182 days from 10/12 to 4/12. A half year is 182 or 183 days (just use 182.5 in the future).
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