## FMP

Aegis.Sameerdutta
Posts: 8
Joined: Mon May 09, 2016 10:39 am

### FMP

Can you please advise on why we have used 365 as denominator in some places in SOLUTION as I am a bit confused? snapshot (...coupon is = 4*exp(-0.04*130/365) = 3.94. Fo = (101.11-3.94)*exp(0.04*180/365) =)

Johnson has invested in a bond. It pays 8% semi- annual coupon. It has a quoted price of 100 and conversion factor of 1.2. There are 180 days between the coupons and last coupon was paid 50 days ago. Assume a treasury bond futures contract is to be delivered 180 days from today and the risk free rate is 4%. Calculate theoretical price for the T-bond futures contract

a. 97.99 Incorrect
b. 99.10 Incorrect
c. 97.17 Incorrect
d. 81.66 Correct
.
Accrued interest: 4*50/180 = 1.11. Cash price = 100+1.11=101.11. Next coupon will be received 130 days from today. Hence present value of next coupon is = 4*exp(-0.04*130/365) = 3.94. Fo = (101.11-3.94)*exp(0.04*180/365) = 99.10. Since the contract expires 50 days after the last coupon payment, the quoted futures price is calculated as, cash futures price – accrued interest = 99.10 – (4*50/180) = 97.99. Theoretical price = 97.99/1.2 = 81.66

Incorrect

Marks for this submission: 0/1.

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

### Re: FMP

Hi Aegis

As we know that A day-count convention is a system used in the bond markets to determine the number of days between two coupon dates. This system is important to traders of various bonds because it affects how the accrued interest and present value of future coupons is calculated.
Actual/365 is used when pricing U.S. government Treasury bonds.

Aegis.Sameerdutta
Posts: 8
Joined: Mon May 09, 2016 10:39 am

### Re: FMP

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

### Re: FMP

Hi Aegis
Here Actual day between two coupon bond is 180 days, so we use Actual/365.