22-70 If a 16-year 12 percent semi-annual $100,000 T-bond,currently yielding 10 percent,is used to deliver against a 20-year,8 percent T-bond at 114-16/32,what is the conversion factor? What would the buyer have to pay the seller?
A)1.158; $132,591.
B)1.156; $115,600.
C)1.150; $131,284.
D)1.102; $124,200.
E)1.000; $114,160.

Question

Quizplus · Accepted Answer

The conversion factor can be calculated using:
Conversion Factor = (Full Price of Basis Bond / Full Price of Deliverable Bond)
= (114-16/32 + 8/32 * 1/32) / (100 + 6/32 * 1/32)
= 1.158

The buyer would have to pay the seller:
Total Amount = (Conversion Factor * Face Value of Deliverable Bond * Quoted Price of Deliverable Bond)
= (1.158 * $100,000 * 114-16/32)
= $132,591.

22-70 If a 16-Year 12 Percent Semi-Annual $100,000 T-Bond,currently Yielding