Interest Rate Futures Section A

Question 1

US Treasury Bond Futures

Answer 1

Treasury bond prices in the United States are
quoted in dollars and thirty-seconds (32nd) of a
dollar.
* The quoted price is for a bond with a face value (FV)
of $100.
* Cash price = Quoted price + Accrued interest

Question 2

Assume today is March 5, 2018, and a long-term U.S.
Treasury bond maturing on July 10, 2038, with a coupon
rate of 11%, has a quoted price of 155-16. Since US
government bonds pay semi-annual coupons, we can
determine that January 10 and July 10 are the coupon
payment dates, with a coupon amount of $5.50. Find the
cash price of a US.

Answer 2

• The last coupon payment date was January 10, 2018, and
  the next coupon payment date is July 10, 2018. The total
  period between these dates is 181 days
  (21+28+31+30+31+30+10). The actual number of days
  between January 10, 2018, and March 5, 2018, is 54 days
  (21+28+5).
  24
  The accrued interest is (54/181)5.5=1.64
  The cash price of the bond is 155+(16/32)+1.64=$157.14

Question 3

Eurodollar Futures Contracts

Answer 3

Quotations of Eurodollar Futures
* The pricing of Eurodollar futures follows the
IMM Index format
* IMM Index = 100 − (Futures Interest Rate × 100)

Question 4

• Suppose a trader buys a Eurodollar futures contract
  (a contract size of $1 million) on May 13, 2024, set
  to expire in June 2024. The quotes are 99.725 on
  May 13 and 99.615 on June 17.

Answer 4

• May 13: 10, 000 × [100 − 0.25(100 − 99.725)] = 999, 312.5 USD
• June 17: 10, 000 × [100 − 0.25(100 − 99.615)] = 990, 037.5 USD
• 999, 312.5 − 990, 037.5 = 275 USD Loss