Compute the invoice price for each bond using the futures settlement price multiplied by the conversion factor:

$$\text{Invoice Price} = \text{Futures Price} \times \text{CF}$$

Using the futures settlement price of 98.50:

• Bond A:

  $$98.50 \times 0.96 = 94.56$$

  Cost/profit to the short:

  $$97.00 - 94.56 = 2.44$$

  So Bond A costs the short about $2,440 per contract.

• Bond B:

  $$98.50 \times 1.03 = 101.455$$

  Cost/profit to the short:

  $$102.00 - 101.455 = 0.545$$

  So Bond B costs the short about $545 per contract.

Because Bond B has the lower delivery cost, it is the cheapest-to-deliver (CTD) bond.