We first express the quoted bond prices in decimal form (remembering that the numbers after the dash represent 32nds):

• Bond A: $90 + \frac{11.5}{32} = `$90.35`94$
• Bond B: $105 + \frac{12}{32} = `$105.37`5$
• Bond C: $110 + \frac{23}{32} = `$110.71`88$

The cheapest-to-deliver (CTD) bond minimizes the following expression: $Q - S \times F$

Where:

• Q is the quoted bond price
• S is the most recent settlement price in the futures contract
• F is the conversion factor

This expression calculates the cost of delivering the bond.

Calculating the delivery cost for each bond:

• Bond A: $90.3594 - 96.5 \times 0.7174 = `$21.13`03$
• Bond B: $105.375 - 96.5 \times 0.7381 = `$34.14`84$
• Bond C: $110.7188 - 96.5 \times 0.9576 = `$18.31`04$

Since Bond C has the lowest delivery cost ($18.3104), it is the cheapest to deliver.

The correct answer is C. Bond C