Explanation:
Amy has a short position in the contract. Therefore,
Cash received by the short-position party = (Most recent settlement price × Conversion factor) + Accrued interest
= (91 + 28/32) × 1.471 + $3.29
= 91.875 × 1.471 + $3.29
= $135.148 + $3.29
≈ $138,438
For a $100,000 face value contract, this translates to approximately $138,438. The quoted price of 91-28 means 91 and 28/32, or 91.875% of face value. The short position party receives this amount upon delivery of the bond.
Q-692. Amy Jackson, a fixed investment manager at Flaxes Investment Company headquartered in Toronto, has a short position in 15-year Treasury bond contracts with a $100,000 face value for each contract. The last quoted price of the contract is 91-28, while the accrued interest on the bond is $3.29 (for $100 face value). If the conversion factor for the deliverable bond under the contract is 1.471, then which of the following is true?
A
The cash received by the short-position party is $138,438.
B
The cash paid by the short-position party is $138,438.
C
The cash paid by the short-position party is $139,987.
D
The cash received by the short-position party is $139,987.
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