Cours 6 Flashcards
What is the day count convention for a US T-bond?
actual/actual day count
What is the day count convention for US corporate bonds?
30/360 day counts
What is the day count convention for a US T-bill?
actual/360 day counts
What is the formula for the cash price?
It is the quoted price + accrued interest
What is the dirty price?
It is the price paid for a bond.
What is the quoting convention for a US T-Bond?
To use the price and the cents in 32nd of dollars.
When there is a delivery of the bond, which bond is delivered?
The cheapest to deliver based on the cost for the short.
What are the delivery options for a US T-Bond?
- Cheapest-to-deliver option
- Wild card option
Describe how the wild card option works.
1) Transactions on T-bond futures end at 2pm
2) Transactions on spot T-bonds end at 4pm
3) Short position has until 8pm to signal his intention to deliver, based on the futures prices observed at 2pm.
4) If prices increase, the short position buys the cheapest T-bond. Otherwise, he keeps the position open until the next day.
What is the effect of different delivery options on a bond?
It pushes the bond price down.
What is a banker’s acceptance?
It is a short-term zero-coupon debt security issued by a company but guaranteed by one of the 6 major Canadian financial institutions. It is the YTM on a zero-coupon bond.
Where are banker’s acceptance rates traded? What does this give to their value?
- They are traded on an active secondary market.
- They are a good indicator of the short-term interest rates applied to loans and borrowings by major Canadian banks.
What is the result of a 1% variation in the coted futures price “Q”?
It results in a 25$ variation in the underlying value.
What is the duration of a zero-coupon bond?
It is equal to its maturity.
What are the duration conditions?
It is a valid approximation for small parallel changes in the term structure of spot interest rates.
