Explanation:
Cost of delivery:
Bond 1: $98 - (91.50 \times 1.02) = `
Bond 2: $122 - (91.50 \times 1.27) = `
Bond 3: $105 - (91.50 \times 1.08) = `
Bond 4: $112 - (91.50 \times 1.15) = `
Therefore, Bond 1 is the cheapest-to-deliver bond.
(Book 3, Module 45.2, LO 45.e)
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Question 66
An investor is about to deliver a short bond position and has four options to choose from as listed below. The settlement price is $91.50. Based on the information provided, which of the four bonds is the cheapest to deliver?
| Bond | Quoted Price | Conversion Factor |
|---|---|---|
| 1 | 98 | 1.02 |
| 2 | 122 | 1.27 |
| 3 | 105 | 1.08 |
| 4 | 112 | 1.15 |
A
Bond 1.
B
Bond 2.
C
Bond 3.
D
Bond 4.
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