Explanation:
Bond C is the cheapest-to-deliver bond, at $0.11.
| Bond | Cost of Delivery |
|---|---|
| A | $103 - (98.03 \times 1.03) = ` |
| B | $116 - (98.03 \times 1.12) = ` |
| C | $105 - (98.03 \times 1.07) = ` |
| D | $124 - (98.03 \times 1.23) = ` |
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Question 54
An investor with a short position is preparing to deliver a bond for this position. The bond to purchase for delivery is based on a settlement price of $98.03 (also known as the quoted futures price). Which of the following four bonds is cheapest to deliver?
| Bond | Quoted Bond Price | Conversion Factor |
|---|---|---|
| A | 103 | 1.03 |
| B | 116 | 1.12 |
| C | 105 | 1.07 |
| D | 124 | 1.23 |
A
Bond A.
B
Bond B.
C
Bond C.
D
Bond D.
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