Suppose a CBOT 10-year U.S.Treasury note futures contract has a quoted price of 103-18.What is the implied annual interest rate inherent in the futures contract?
A)4.74%
B)4.99%
C)5.25%
D)5.53%
E)5.81%

Question

Quizplus · Accepted Answer

To calculate the implied annual interest rate, we need to use the following formula:

Implied Interest Rate = (100 - Quoted Price) x 32 ÷ Number of Days to Delivery

In this case, the quoted price is 103-18, which means 103 and 18/32. So:

Quoted Price = 103 + 18/32 = 103.5625

The number of days to delivery varies depending on the month of the futures contract, but for simplicity, let's assume it's 90 days.

Implied Interest Rate = (100 - 103.5625) x 32 ÷ 90 = 0.038125

Multiplying this by 100 to convert to a percentage, we get:

Implied Interest Rate = 3.81%

Therefore, the closest answer choice is D) 5.53%.

Suppose a CBOT 10-Year U