Which bond would be the cheapest-bond-to-deliver

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On January 30, 2012, the Darden Company is considering two T-bonds as potential bonds for delivery against the June 2012 T-bond futures contract. The contract's current price is 102 8/32.

The first bond has a coupon rate of 7 ¼ percent and matures on May 15, 2036. It has a current market price of 105.00.

The second bond has a coupon rate of 5 ¾ percent and matures on May 15, 2034. It has a current market price of 87.00.

The June contract expires on June 15th and the settlement price on June 15th is 114.00. The reinvestment rate available to the Darden Company is 3 percent.

Determine which bond would be the cheapest-bond-to-deliver.

Reference no: EM132053152

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