# How to calculate a future contracts price?

I have the following question from Hull, problem 6.17:

On August 1 a portfolio manager has a bond portfolio worth 10 million. The duration of the portfolio in October will be 7.1 years. The December Treasury bond futures price is currently 91-12 and the cheapest-to-deliver bond will have a duration of 8.8 years at maturity. How should the portfolio manager immunize the portfolio against changes in interest rates over the next two months? The solution is as follows: The treasurer should short Treasury bond futures contract. If bond prices go down, this futures position will provide offsetting gains. The number of contracts that should be shorted is: \begin{align} Number\ of\ Contracts& =\frac{\ 10\,000\,000}{\bbox[yellow, 5px,border:2px solid red]{\ 91\,375}}\times\frac{7.1\ \text{years}}{8.8\ \text{years}} \newline & = 88.30 \ \text{contracts}\newline \therefore Number\ of\ Contracts &\approx 88\ \text{contracts}\end{align} Question: How was the91,375 calculated?

• Please refer to page 2 of cmegroup.com/education/files/understanding-treasury-futures.pdf. Nov 29, 2017 at 6:09
• @helinGai Never seen this notation before. Thanks! $\therefore$ 91-12 = 91 + 12/32 = 91.375%, 91.375% x \$1,000,000 = \$ 91,375 Nov 29, 2017 at 6:18

The question reads "...price is currently 91-12..." where 91-12 is notated in futures quotes (pg. 2 of Treasury Futures). Coupon-bearing securities are frequently quoted in percent of par to the nearest 1/32nd of 1% of par. This means that: \begin{align}91\mbox{-}12 & = 91 + \frac{12}{32}\newline & = 91 + 0.375\newline & = 91.375 \newline \newline \therefore 91\mbox{-}12& =91.375\%\end{align}
To calculate the future contract price: \begin{align}Future\ Contract\ Price& = 91.375\%\times \ 1\,000\,000\newline &=\ 91\,375\end{align}