Explanation:
The conversion factor is based on the bond’s value assuming a 6% yield. In general, a bond with a coupon closer to or above 6% will have a higher conversion factor than a lower-coupon bond, all else equal.
Among the choices:
Bond B has the highest coupon rate and therefore the highest conversion factor among the four.
Answer: B
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Q-171.3. The following four bonds can be delivered by the party with the short position in a U.S. Treasury bond futures contract:
Which of these bonds has the HIGHEST conversion factor?
A
Bond A
B
Bond B
C
Bond C
D
Bond D
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