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Answer: $80.70
The provided solution indicates the quoted futures price is **$80.700**, which matches **option B**. ### Key steps 1. **Compute accrued interest** on the CTD bond from the last coupon date to settlement. 2. **Convert the quoted clean price to a dirty price** by adding accrued interest. 3. **Subtract the present value of the next coupon** because it will be received before delivery. 4. **Grow the remaining cash price at the risk-free rate** to the delivery date. 5. **Remove accrued interest at delivery** and **divide by the conversion factor** to standardize the futures invoice price. ### From the exhibit - Accrued Interest = **$2.225** - Dirty Price = **$117.225** - PV of next coupon = **$4.466** - Cash futures price = **$115.006** - Quoted futures price for the CTD bond = **$80.700** Thus, the correct quoted futures price is **$80.70**.
Author: Manit Arora
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Question 720.3. [This is tedious and difficult. Inspired by the final LO above and Hull's EOC Question 6.11] Today it is December 31, 2018. The cheapest-to-deliver bond in an August 2018 Treasury bond futures contract is a 9.0% coupon bond, and delivery is expected to be made on August 28, 2018. Coupon payments on the bond are made on April 2 and October 2 each year. In this case, therefore, as of settlement today (December 31, 2018) there were 90 days since the last coupon and there will be 92 days until the next coupon. Delivery will be in 240 days (and subsequent coupon date 35 days after delivery, or 275 days from today). The term structure is flat, and the rate of interest with continuous compounding is 3.0% per annum. The conversion factor for the bond is 1.380. The current quoted bond price (for this bond which is assumed to be the cheapest to deliver) is $115.00. What is the quoted futures price for the contract?
A
$73.59
B
$80.70
C
$94.75
D
$106.44
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