Suppose the September CBOT Treasury bond futures contract has a quoted price of 89-09. The T-bond is a 20-year 6% coupon bond and the interest is paid semi-annually. What is the implied annual interest rate inherent in this futures contract?


A 6.32%
B 6.65%
C 7.00%
D 7.35%
E 7.72%

Suppose the September CBOT Treasury bond futures contract has a quoted price of 89-09. The T-bond is a 20-year 6% coupon bond and the interest is paid semi-annually. What is the implied annual interest rate inherent in this futures contract?

Answer (C). 7.00%

Quote: 89'09 0.89 0.09

N: 40
PV = (0.89+0.09/32) × $1,000 = -$892.81
FV = $1,000
PMT = $30
I/YR = 3.5%

Annual rate: I/YR × 2 = 7.00%