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# cash&carry arbitrage

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Suppose that the price of a bond futures contract that settles in four months is \$101 and the price of the underlying bond is \$98. The underlying bond has a coupon rate of 9%, par value of \$100, and the next coupon payment is to be made in six months. The borrowing rate is 7.2%. If an investor implemented a cash and carry trade, what would the arbitrage profit be?

Now suppose that instead of a futures price of \$101, the futures price is \$96. If an investor implemented a reverse cash and carry trade, what would the arbitrage profit be?

What is the theoretical futures price?

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Bond futures cash&carry arbitrage is assessed.

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Please find tutorial and help for Bond futures cash&carry arbitrage in the attached file.

Bond Futures Cash & Carry Arbitrage

Arbitrage Profit with Cash and Carry Trade
Future price of future contract (F) = \$101 (settle in four month)
Price of underlying bond (P) = \$98
Coupon rate = 9%
Par value = \$100
Borrowing rate (r) = 7.2%
Time of future contract delivery (t) = 4 months
The cash and carry trade can be used to calculate the arbitrage profit that is as below -
Particular Amount
Futures settlement cash flows:
Price received for bond (future contract price)
Bond accrued (9% coupon rate for four months)
\$101
\$3
Total proceeds from future contract \$104
Loan cash flows:
Repayment of principal (underlying price of bond)
Interest on borrowing (7.2% borrowing rate for four months)
\$98
\$2.4
Total outplay \$100.4
Arbitrage profit (Total ...

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