Bond futures

CFA Level II Derivatives
#1

Reading 40. Practice problems, Curriculum. Q1.

The solution has calculated the no-arbitrage futures price on the basis of dirty price (viz. B0(T+Y) + AI0), but it doesn’t deduct accrued interest at time T. Why?

They have added AI (T) to F0(T). Why? Isn’t it supposed to be deducted instead?

( My understanding is :

Quoted bond price and quoted futures prices are just clean prices of bonds.

Futures prices, viz F0(T) are clean prices of bonds with an in-built conversion factor.

Conversion factor is a multiplier. (My guess is to standardize bonds with different face values??) )

What am I missing?

#2

I have been searching the forum for the same question through Google, and it gave me like 10 threads of the same question. Here are some:

https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91364462

https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91363628

#3

Why do we assume that the futures price we calculate already has a conversion factor in built in it ? (we divide by the CF to get the quoted price)

#4

Would it be right to say that the bond’s futures price that we calculate, F0(t)

  1. is a dirty price ?

  2. has an inbuilt conversion factor?

  3. and the quoted futures price is clean price and is devoid of conversion factor?