Explanation:
The financing value of a bond trading "on special" represents the accumulated value of the special spread over the period the bond remains special. Using the actual/360-day count convention, first find the actual days between July 1, 2019, and October 31, 2019: October 31st is the 304th day of the year, and July 1st is the 182nd day of the year. Actual days = 304 - 182 = 122 days (or July 30 + Aug 31 + Sep 30 + Oct 31 = 122 days).
Financing Value = Market Value × Special Spread × (Actual Days / 360)
Financing Value = $1,000 × 0.50% × (122 / 360)
Financing Value = $1,000 × 0.005 × 0.338889 = $1.6944.
Rounding to two decimal places gives $1.69.
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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