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Kiakaha

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tT
发表于 2013-4-28 08:12 | 只看该作者

Treasury Yield Qn

percent, calling, contract, annual, future
A $1 face value bond pays an 8 percent semiannual coupon. The annual yield is 6%. The bond has 10 years remaining until maturity, and its price is $1.1488. Consider a futures contract calling for delivery of this bond only. The contract expires in 18 months. The risk-free rate is 5 percent. compute the future price.
Why can’t I key in N=8.5, I/Y=3, pmt=4, and FV=100 to get the answer? I know the other method.
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Micholien

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2#
发表于 2013-4-28 08:13 | 只看该作者
Futures Price = Bond Price * (1 + Risk Free)^T - Future Value of Coupon Payments
If there is a conversion factor, then you have to divide the futures price obtained above by the factor.

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Colum

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3#
发表于 2013-4-28 08:13 | 只看该作者
Yes I understand that. But why not the first one as I calculated?

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mnieman

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4#
发表于 2013-4-28 08:13 | 只看该作者
Is it because of the yield curve is not flat?

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giorgio10

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5#
发表于 2013-4-28 08:13 | 只看该作者
I’m assuming that by “N=8.5, I/Y=3, pmt=4, and FV=100” you are trying to caclulate the value of the underlying bond in 18 months.
1) N should equal 17, since in 18 months you have 17 coupon payments left.
2) PYMT should equal 0.04, I/Y should be 0.03 and FV should be 1
2) Even if you do this you will not calculate the no-arbitrage CURRENT price of the futures contract since you are not taking into account the risk free rate.

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TheMBAGlover

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6#
发表于 2013-4-28 08:13 | 只看该作者
Thanks Wianek.
I think risk free rate is the word here.

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