Series 3: Exercise

Taken from our Series 3 Online Guide


Answer the following questions.

1. Which of the following is true of a bond’s adjusted futures contract’s price?

A. It is the same as the price of a delivered security.

B. It is one factor used to calculate total invoice price.

C. It is added to accrued interest to arrive at principal invoice price.

D. It can be determined without knowing a bond’s conversion factor.

2. In March, a corporation decides it will issue $5 million in 20-year bonds. The issue date is set for July. Fearing a rise in interest rates, the corporation plans to hedge its offering with T-bond futures. Prices for T-bond futures are as follows:

March — 98-30

June — 99-02

September — 99-06

December — 99-12

Which of these futures contracts should the corporation short in order to hedge its offering?

A. March

B. June

C. September

D. December

3. Which of the following is always true of the security that is cheapest to deliver?

A. It has the lowest basis

B. It has the highest basis

C. It has the lowest adjusted futures price

D. If has the lowest cash price

4. Which of the following are true regarding Bond A and Bond B?


Cash Price

Conversion Factor

Adjusted Futures Price

Bond A October 2020




Bond B November 2021




A. The basis for Bond B is -0.3125

B. Bond A is cheaper to deliver than Bond B

C. The basis for Bond A is 1.25

D. Bond B is cheaper to deliver than Bond A


1. B. Adjusted futures price of a deliverable security is

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