Can “dividends” be synonumous with “coupons”? Seems like T-bonds give coupons but the Q below uses the two interchangeably. Or is it a mistake? Before Mason receives the e-mail, he turns his attention to a memo about a futures contract a subordinate is considering. Unfortunately, the memo arrives without the summary page to the notes. Mason must deduce the nature of the hedge based on its characteristics: The risk-free rate used in calculating the futures price, and that price adjusted to account for individual future dividends. Based on the two characteristics of the futures contract in Mason’s memo, which of the following does the contract refer to? Treasury bond futures? Stock index futures? A) Yes Yes B) No Yes C) Yes No Your answer: B was incorrect. The correct answer was C) Yes No Both Treasury bond futures and stock index futures require the use of the risk-free rate to determine price. But while the pricing of bond futures requires the discounting of individual dividends, the pricing of stock-index futures does not, instead using a continuously compounded dividend yield. (Study Session 16, LOS 59.f)
they are talking about 2 separate things here. Risk free rate - would apply to a Treasury Bond Futures. So either A or C would apply. But when they provide Dividends were present in the torn up sheet (or possibly that the dog swallowed) - they would not apply to a Stock Index future - which requires a continuously compounded div. yield. Dividends would apply to an Equity Future only.
cpk, they specifically state that treasury bonds provide dividends: “But while the pricing of bond futures requires the discounting of individual dividends…” my interpretation is that they break it down by rfr and div. both t-bonds and stock index futures use rfr, but only treasury bonds give individual dividends while futures give continutes dividends. therfore, treasury bonds is yes on both and futures is only 1 for 2, giving it a no. so my question still is why they claim treasury bonds give dividends unless of course rhey are using dividends interchangably with coupons.
schweser question - with absolutely no corrections year after year. which bond pays dividends…
so an error?
Definitely an error. Bonds have coupons. Stocks pay dividends.