Hi, here is a question in the Curriculum.
Quoted futures price = 125
Conversion factor = 0.9
Quoted bond price = 112
Accrued interest since last coupon payment = 0.08
Accrued interest at futures contract expiration = 0.20
Time to expiration = 3 months
R = 0.30%
We need to calculate Value.
My calculation is:
Fair price is = (1 + 0.003)^0.25*(112.00 + 0.08) = 112.16
We must deduct 0.20 and divide by 0.9 here = (112.6 - 0.2)/0.9 = 124.4
Value = 125 - 124.4 = 0.60
But answer in curriculum says that we must multuply 125 by 0.9 = 112.5 and add 0.2 = 112.7
Value = 112.7 - 112.16 = 0.54
Is not this a mistake? They teach us that to calculate value we must compare futures values (125), not bond values (112), why do they apply 0.9 to 125 (125*0.9) and not to 112 (112/0.9)?