Suppose the December CBOT Treasury bond futures contract has a quoted price of 80'07.What is the implied annual interest rate inherent in the futures contract?
A) 6.86%
B) 7.22%
C) 7.60%
D) 8.00%
E) 8.40%

Question

Quizplus · Accepted Answer

The implied annual interest rate in a futures contract can be calculated using the formula: Interest Rate = (100 - Price) / Price * 100. For a quoted price of 80'07, which means 80.21875 (since '07 means 7/32 and each point is divided into 32nds), the calculation is (100 - 80.21875) / 80.21875 * 100 = 24.67%. However, this calculation does not directly apply to Treasury bond futures without considering the specific mechanics of bond pricing and yield calculations. The correct answer, therefore, is derived from understanding that Treasury bond futures prices inversely reflect interest rates. Without the specific formula or context provided in the question, the correct answer is based on the understanding that lower futures prices imply higher interest rates. Given the choices, 8.00% is a plausible implied annual interest rate for a futures contract quoted at 80'07, assuming a direct inverse relationship between bond prices and interest rates. This explanation assumes a general understanding of bond pricing and interest rates, but the exact calculation would depend on more specific details about the bond and the futures contract.

Suppose the December CBOT Treasury Bond Futures Contract Has a Quoted