Find the cheaper bond to deliver

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It is August 20, and you are trying to determine which of two bonds is the cheaper bond to deliver on the December Treasury bond futures contract. The futures price is 89 12/32. Assume delivery will be made on December 14, and use 7.9 percent as the repo rate. Find the cheaper bond to deliver.

a. Bond X: A 9 percent noncallable bond maturing in about 28 years with a price of 100 14/32 and a CF of 1.1106. Coupons are paid on November 15 and May 15. The accrued interest is 2.37 on August 20 and 0.72 on December 14.

b. Bond Z: An 11 1/4 percent noncallable bond maturing in about 25 years with a price of 121 14/32 and a CF of 1.3444. Coupons are paid on February 15 and August 15. The accrued interest is 0.15 on August 20 and 3.7 on December 14.

Reference no: EM131323675

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