what is the day count convention?
it defines the period of time to which the interest rate applies and the period of time used to calculate accrued interest
what are the 3 kinds of day out conventions in the US?
actual/ actual
30/360
actual/ 360
what is an example of an instrument using actual/ actual day count convention?
treasury bonds
what is an example of an instrument using a 30/ 360 day count convention?
corporate bonds
what is an example of using an instrument using an actual/ 360 day count convention?
money market instruments
if a bond with a principle of 100, a semiannual coupon of 8% per year on march 1st matures on September 1st, what is the interest earned between march 1st and July 3rd using actual /actual?
march 1 to September 1= 184 actual days
march 1st to July 3rd = 124 actual days
(124/184) X 4= $2.6957
if a bond with a principle of 100, a semiannual coupon of 8% per year on march 1st matures on September 1st, what is the interest earned between march 1st and July 3rd using 30/360?
march 1 to September 1= 180 days (30x6)
march 1 to July 3rd= 122 (4x30 + 2)
(122/ 180) x 4= $2.711
if a bond with a principle of 100, a semiannual coupon of 8% per year on march 1st matures on September 1st, what is the interest earned between march 1st and July 3rd using actual/ 360?
march 1 to September 1= 180 (30x6)
march 1 to July 3 = 124 actual days
124/ 180 x 4= $2.76
what is the February effect?
that depending if you use actual/ actual or 30/360 the answer will vary quite a bit
how is the cash price of a treasury bond found?
Price= quoted price + accrued interest since last coupon payment
what are the 3 kinds of quotes for futures?
treasury bond futures (10+ year maturity): quoted in dollars and 1/32 dollars
treasury note futures(1-10 yr maturity): quoted in dollars and nearest half of 1/32 dollars
5yr and 2yr treasury note futures: quoted in dollars and nearest quarter of 1/32 dollars
if a treasury bond maturing in 13 years is quoted as 179-20, what is that in dollar amount?
quoted in dollars and 1/32 dollars
179 + 20/32
$179.625
if a treasury note maturing in 8 years quoted as 139-025, what is that in dollar amount?
quoted in dollar and nearest half of 1/32 dollars
139 + 2.5/32
$139.078125
if a treasury note maturing in 5 years quoted as 125-132, what is that in dollar amount?
quoted in dollar and nearest quarter of 1/32 dollars
125+ 13.25/32
$125.4140625
how do you determine the cash price of treasury bond futures received by a party with a short position?
most recent settlement price X conversion factor + accrued interest
what is the cost of purchasing a bond?
quoted price + accrued interest
review cost of delivering each bond
slide 16 chapter 6
what are eurodollar futures?
futures on the 3 month LIBOR rate
what is a basis point?
0.01% or 0.0001
how is a eurodollar futures contract settled?
in cash
when is the LIBOR rate observed?
2 days before the 3rd Wednesday of the month
what is the one-month SOFR futures?
it is designed to be as similar as possible to the one-month fed fund futures contract and is based on an arithmetic average of overnight rates
what is the 3 month SOFR futures?
it is designed to be as similar as possible to the 3 month eurodollar futures and is baed on the result of compounding overnight rates
what can we assume about forward prices?
they are equal to futures prices
