In Regards to the Treasury Bond Futures Contract, Which of the Below

question 45

Multiple Choice

In regards to the Treasury bond futures contract, which of the below statements is FALSE?

• A) The underlying for a Treasury bond futures contract is $100,000 par value of a hypothetical 20-year, 6% coupon bond.
• B) To make delivery equitable to both parties, and to tie cash prices to futures prices, the CBOT has introduced conversion factors for determining the invoice price of each acceptable deliverable Treasury issue against the Treasury bond futures contract.
• C) In selecting the issue to be delivered, the short will select from all the deliverable issues the bond that is the most expensive to deliver.
• D) The invoice price paid by the buyer of the Treasury bonds which the seller delivers is determined using the formula: Invoice price = Contract size × Future contract settlement price × Conversion factor.

---

Definitions:

Present Value

The present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Interest

The cost of borrowing money, typically expressed as a percentage rate over the period of the loan, or the return earned on investments.

Annual Interest

The amount of interest paid or earned over one year, often expressed as a percentage of the principal.

Blown Fuse Indicators

Devices that provide a visual or electronic signal indicating that a fuse has interrupted the circuit it protects due to an overcurrent condition.