Derivatives, R39 Practice Problem 1

I am trying to do this fixed income futures question by calculating the QF for the underlying bond, then comparing it with the QF of the futures contract.

Quoted futures price 125.00 Quoted bond price 112.00 Conversion factor 0.90 Accrued interest since last coupon payment 0.08 Time remaining to contract expiration Three months Accrued interest at futures contract expiration 0.20 Accrued interest over life of futures contract 0.00

Risk-free rate is 0.30%

a) QF of the underling bond:

F=(112+0.08)3/12 - 0.2 = 111.9639656

QF= 111.9639656/0.9 = 124.40441

b) Difference between the QFs of the futures contract and underlying bond: 125-124.40441 = 0.595559 c) Discounting the above back to the present: (.59559)/(1.003)3/12=0.59514

The answer is 0.5356.

Apparently my step c) is wrong and it should be (.59559 *.9)/(1.003)3/12. Can someone explain why after finding the QF difference in step b), I need to re-convert the QF difference back to the underlying bond price before discounting back to the present?

Thanks in advance!