1. Assume that you take a short position in a March T-bond futures contract. The settlement price of the cheapest-to-deliver (CTD) bond in March will be 70 and the conversion factor is equal to 1.4. The bond’s coupon payments are planned to deliver in May and November. What is the invoice price of this bond (face value = 100,000) if the accrued interest from November to March is equal to $1,600?
Invoice price is: clean price + accrued interest.
2． A stock currently trades at $10. At the end of three months, the stock will either be $11 or $9. The continuously compounded risk-free rate of interest is 3.5% per year. The value of a 3-month European call option with a strike price of $10 is closest to: