Question

Consider a futures contract for the delivery of a two-period bond with M=100 in one period from today. There are four deliverable bonds: A, B, C, and D. The prices and conversions factors of these four bonds on the delivery date are P(A)=100, conversion factor(A)=1.05; P(B)=105, conversion factor(B)=1.04; P(C)=103, conversion factor(C)=1.04; P(D)=99, conversion factor(D)=0.98. Which one of the above four bonds will be delivered? A. Bond B B. Bond D C. Bond C D. Bond A

Answer 1

Answer:

The correct answer is ()D.Bond A.

Explanation:

From the question provided, the bond that will be delivered is Bond A.

The reason is that, The bond A has the highest conversion factor when measured  to other bonds and must be delivered.

The Bond A prices and conversions factors with its delivery date will be get there on time before other bonds, because of its high rate.