# Treasury bond future settles and Exchange rate

Problem 3. A Treasury bond futures contract settles at 105-8.

a. What is the present value of the futures contract?

b. If the contract settles at 105-8, are current market interest rates higher or lower than the standardized rate on a futures contract? Explain.

c. What is the implied annual interest rate on the futures contract?

d. Calculate the new value of the futures contract if interest rates increase by 1 percentage point annually.

e. Calculate your profit or loss if you sold a futures contract at 105-8 and purchased an offsetting contract when rates increased by 1 percentage point annually.

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See attached file for full problem description.

https://brainmass.com/business/foreign-exchange-rates/treasury-bond-future-settles-exchange-rate-131191

#### Solution Summary

The solution

1) calculates the present value of the futures contract

2) determines whether current market interest rates are higher or lower than the standardized rate on a futures contract

3) calculates implied annual interest rate on the futures contract

4) calculates the new value of the futures contract if interest rates increase by 1 percentage point annually

5) calculate profit or loss in selling a futures contract at 105-8 and purchasing an offsetting contract when rates increase by 1 percentage point annually