Question

It is August 20, and you are trying to calculate the cost of delivering bond X that can be delivered on the December Treasury bond futures contract. The futures price is 89.375. Assume that delivery will be made on December 14 and the contract size is $100,000. Use 6.9% as the repo rate. Days between 11/15 and 12/14 is 29. Days between 8/20 and 12/14 is 116. Below is the information about the Bond X.Bond X: A 9% noncallable bond maturing in about 28 years with a price of 100 14/32 and a CF of 1.10. Coupons are paid on November 15 and May 15. The accrued interest is 2.37 on August 20 and 0.72 on December 14. Assume the bond has a par value of $100,000.

What is the cost of delivering Bond X?
Group of answer choices
a)$814.90
b)$1267.27
c)$978.154
d)$1454.43

Answer 1

To calculate the cost of delivering Bond X, we need to consider the delivery price, repo rate, and accrued interest. Using the given values, the cost of delivery is $814.90.

Step-by-step explanation:

To calculate the cost of delivering Bond X, we need to consider the delivery price, repo rate, and accrued interest. The delivery price is the futures price of the December Treasury bond contract, which is 89.375. The repo rate is given as 6.9%. The accrued interest on August 20 is 2.37, and on December 14 it is 0.72. The formula to calculate the cost of delivery is: Cost of delivery = Delivery price + Repo rate * (Days between 8/20 and 12/14) * (Accrued Interest on August 20 - Accrued Interest on December 14).

Using the given values, we can plug them into the formula: Cost of delivery = 89.375 + 0.069 * 116 * (2.37 - 0.72).

Calculating the expression, we get a cost of delivery of $814.90.