Cheapest to deliver based on the contract settlement price

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Reference no: EM131974629

1. An interest rate of 21% per year, compounded every 4 months, is equivalent to what effective rate per year? Show hand and spreadsheet solutions.

2. Assume it is March 1, 2018, and you are short on the March Treasury bond contract. You are considering two different issues to deliver: one maturing Feb. 15, 2039 paying a 3.50% coupon and one maturing May 15, 2040 paying a 4.375% coupon. Based on the Feb. 16 closing price - again assuming it is actually March 1st - calculate the dirty price of each to find out your liquidity needs and determine which is the cheapest to deliver based on the contract settlement price. (Conversion factors can be found at the CME website.)

Reference no: EM131974629

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