The bond that maximizes the difference between the invoice price and the delivery price is referred to as the
A) Cheapest-to-deliver.
B) Conversion bond.
C) Delivery bond.
D) Cheapest to substitute.
E) Cost-of-carry.

Question

Quizplus · Accepted Answer

The bond that maximizes the difference between the invoice price and the delivery price is called the Cheapest-to-deliver. It refers to the bond that is most economical to deliver against a short position in a futures contract. The seller can deliver the cheapest-to-deliver bond to fulfill the contract and make a profit on the difference between the invoice price and delivery price.

The Bond That Maximizes the Difference Between the Invoice Price