Suppose the December CBOT treasury bond futures contract has a quoted price of 80-07. If annual interest rates go up by 1 percentage point, what is the gain or loss on the futures contract (assume $1,000 par value)?
A. Loss of $78,
B. Gain of $78,
C. Loss of $145,
D. Gain of $145, or
E. None of the above
Please see attached file
Answer: A. LOSS OF $78,
We are being asked to find the implied interest rate on a Treasury bond futures contract that settled at 80-07? If interest
rates increased by 1 percent, what would be the contract's new value? The difference in these values gives the answer
Settle price on futures contract as quoted = 80 and 7 32nds
Settle price on futures contract (% of par, decimal) = 80.21875%
The gain/loss on CBOT Treasury Bond futures due to a change in interest rate is calculated.
Derivatives-practice problems with index and interest rate futures
1. A portfolio manager controls $5 million in common stocks. In anticipation of a stock market decline, the manager decides to hedge the portfolio using S&P 500 futures contract. The portfolio beta is 1.20, and the current value of the S&P 500 futures contract selected is 1438.50.
a) Calculate the number of futures contracts that should be bought or sold.
b) Suppose that when the contracts are closed out, the portfolio has fallen in value to $4.8 million and that the S&P 500 index has fallen to 1315. Calculate the gain or loss on the combined position if stock portfolio and futures contracts.
2. Suppose the S&P 500 index is at 1517. The dividend yield on the index is 2 percent. If T-bills yield 3 percent, what is the fair value of an S&P futures contract that calls for delivery in 106 days?
3. A speculator buys 3 T-bill futures contracts at 91.88 and closes them out three weeks later at 91.56. Calculate this person's gain or loss in dollars.
4. A T-bill matures in 60 days and sells for $9,950. What is the bond equivalent yield?
5. A $1,000 par, a 7.5 percent Treasury bond paid interest 57 days ago. It sells for 102 percent of par. Ignoring commissions, but including accrued interest, how much must you pay to buy one of the bonds?View Full Posting Details