A T-bond with a $1,000 par is quoted at a bid of 105-7 and an ask of 105-9. If you sell the bond,you will receive

Question

Quizplus · Accepted Answer

The bid-ask spread is $105-9 - $105-7 = $2/32 = $0.0625. To calculate the selling price, we must subtract the bid price from the par value and multiply by 1/32 of the spread (since the quoted prices are in 32nds). That is, selling price = ($1,000 - $1,057) x 1/32 = $18.75. Therefore, the selling price is $1,057 - $18.75 = $1,038.25.

A T-Bond with a $1,000 Par Is Quoted at a Bid