The cheapest to deliver (CTD) bond underlying the T-bond futures contract maturing in five months is a 4.6% T-Bond currently priced at $1,002.33 (full price) per $1,000par. The CTD paid its last coupon four months ago, and its conversion factor is 1.13. The risk-free rate is 2.99%.
Which of the following is
closest
to the no-arbitrage price of the 5-month T-Bond futurescontract?
A)
$867.20.
B)
$877.47.
C)
$976.02.
Assuming future based in flat price on CTD at maturity
( [Full price - PV(coupon paid during contract) ] ^(compounded) - AI at maturity )/ cf
( [1002.33 - 22.89) ] (1.0299)^(150/360) - 11.5 ) / 1.13 = 867.29 ( I used excel)
PV(coupon paid during contract) = 23 / (1.0299)^(60/360) = 22.89
AI at maturity = 23 x 90/180 = 11.5
Thank You