Explanation:
The financing value (or specialness) of an on-the-run bond is calculated by multiplying its market value by the special spread and the time period the bond trades on special.
The period from July 1, 2019, to October 31, 2019, consists of exactly 122 days (July: 30 remaining days, August: 31 days, September: 30 days, October: 31 days).
Using the actual/360-day convention, the calculation is:
Financing Value = Market Value × Special Spread × (Actual Days / 360)
Financing Value = $1,000 × 0.0050 × (122 / 360)
Financing Value = $5.00 × 0.33888 = $1.6944
Rounding to two decimal places gives $1.69, which matches option D.
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Q.11 Calculate the financing value per $1,000 market value of an on-the-run bond if it was issued on July 1st 2019 and trades at a special spread of 0.50%. The bond is expected to trade at GC rates after October 31st 2019. Use the actual/360-day convention.
A
$1.57
B
$1.60
C
$1.65
D
$1.69
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