DERIVATIVES Quiz 6

What does the bond futures quotation 98-12 mean

• The bond price is 98 and settles in December

• The bond price is 98.375

• The bond price is 98.12

   

The price of the cheapest to deliver is computed through

• Most recent settlement price x conversion factor + accrued interest

• (Most recent settlement price + accrued interest) x conversion factor

• Last trade price x conversion factor + accrued interest

Convexity adjustment is computed the following way

• Futures rate = Forward rate – ½* variance *T1*T2

• Forward rate = Futures rate – ½* variance *T1*T2

• Forward rate = Futures rate  + ½* variance *T1*T2

What is the difference between duration and sensitivity?

• They are the same when we are in the continuous interest case

• Duration is only useful to compute the adjusted maturity

• Sensitivity is always higher than duration

To price a bond, you need the following information

• The yield to maturity

• The zero coupon yield curve

• Both yield to maturity and zero coupon yield

• None of the above