Determine which is the cheaper bond to deliver

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On September 26 of a particular year, the March Treasury bond futures contract settlement price was 94-22. Compare the following two bonds and determine which is the cheaper bond to deliver. Assume delivery will be made on March 1. Use 5.3 percent as the repo rate.

a. Bond A: A 12 3/4 percent bond callable in about 19 years and maturing in about 24 years with a price of 148 9/32 and a CF of 1.4433. Coupons are paid on November 15 and May 15. The accrued interest is 4.64 on September 26 and 3.73 on March 1.

b. Bond B: A 13 7/8 percent bond callable in about 20 years and maturing in about 25 years with a price of 159 27/32 and a CF of

1.5689. Coupons are paid on November 15 and May 15. The accrued interest is 5.05 on September 26 and 4.06 on March 1.

Reference no: EM131290918

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