Calculate the implied repo rate for the march

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Explain the impact on the implied repo rate of changing from the bid to the offer futures price of the longer dated futures contract?

Assume that on December 2, 2010, the cheapest bond to deliver was the 6 1/4s maturing on August 15, 2028. The March contract is priced at 112, and the conversion factor is 1.0269. The June futures price is 111.75. The conversion factor for the 6 1/4s delivered on the June contract is 1.0265.

The accrued interest on the bond on March 7, the assumed delivery date, is 0.35, and the accrued interest on June 5 is 1.90. There are no coupons between the two futures expiration dates.

Calculate the implied repo rate for the March June 2011 Treasury bond futures spread. If the actual forward repo rate is 4 percent, what do you recommend?

Reference no: EM131323642

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