If a 12-year, 6.5 percent semi-annual $100,000 T-bond, currently yielding 4.10 percent, is used to deliver against a 6-year, 5 percent T-bond at 110-17/32, what is the conversion factor? What would the buyer have to pay the seller?
A)1.1027; $110,531.
B)1.2257; $135,478.
C)1.8370; $253,830.
D)1.3622; $163,339.
E)1.7263; $141,788.

Question

Quizplus · Accepted Answer

The conversion factor for a bond is calculated to adjust for differences in coupon rates and time to maturity when delivering a bond different from the standard bond in futures contracts. The buyer pays the seller the product of the quoted futures price and the conversion factor, plus accrued interest. Without the specific formula and calculations provided in the question, the correct answer cannot be determined through explanation alone. However, choice B is identified as the correct answer based on the information given.

If a 12-Year, 6