Q:

Which of the following statements least accurately describes the characteristics of futures contracts on Treasury bonds?
a) The Treasury bond futures contract requires the delivery of a Treasury bond with a maturity exceeding 15 years from the time that the futures expires.
b) The amount paid by the long position at expiry of the contract is equal to the futures price times a conversion factor that's dependent upon the bond that's being delivered.
c) The coupon rate is irrelevant in determining the eligibility of a bond's deliverability.
d) The fact that any number of bonds may be delivered to fulfill a futures contract is an advantage to the long position.

A:

The correct answer is: d)
The fact that any number of bonds may be delivered to fulfill a futures contract is an advantage to the SHORT position, because this would imply that the short will deliver the bond that cost her the cheapest.
2006 CFA Level 1 LOS: 16.71.k


RELATED FAQS

  1. What causes a bond's price to rise?

    Learn about factors that influence the price of a bond, such as interest rate changes, credit rating, yield and overall market ...
  2. Which factors most influence fixed income securities?

    Learn about the main factors that impact the price of fixed income securities, and understand the various types of risk associated ...
  3. How are futures used to hedge a position?

    Futures contracts are one of the most common derivatives used to hedge risk. A futures contract is as an arrangement between ...
  4. What happens to the price of a premium bond as it approaches maturity?

    Learn how bonds trade in regard to premiums and discounts, and how bond prices shift closer to par value as bonds approach ...
RELATED TERMS
  1. Note Against Bond Spread - NOB

    A spread within futures contracts created by offsetting positions ...
  2. Cheapest to Deliver - CTD

    In a futures contract, the cheapest security that can be delivered ...
  3. Fixed Income Forward

    A contract to buy or sell a fixed income security in the future ...
  4. Delivery Date

    1. The final date by which the underlying commodity for a futures ...
  5. Bond Futures

    A bond future is a contractual obligation for the contract holder ...
  6. Long Bond

    The 30-year U.S. Treasury Bond. The long bond is so called because ...
Trading Center