Purchase Solution

Hedging interest rates using futures.

Not what you're looking for?

Ask Custom Question

In your portfolio you have $1 million of 20 year, 8 5/8 percent bonds which are selling at 83.15 (or 83 15/32) against this position. Because you feel interest rates will rise you sell 10 bond futures at 81.15 (or 81 15/32) against this position. Two months later you decide to close your position. The bonds have fallen to 78 and the futures contract are at 75.16 (75 16/32). Disregarding margin and transaction costs, what is your gain or loss?

Purchase this Solution

Solution Summary

Gain/ loss on a portfolio that is hedged using futures contracts has been calculated.

Solution Preview

Question: In your portfolio you have $1 million of 20 year, 8 5/8 percent bonds which are selling at 83.15 (or 83 15/32) against this position. Because you feel interest rates will rise you sell 10 bond futures at 81.15 (or 81 15/32) against this position. Two months later you decide to close your position. The bonds have fallen to 78 and the futures contract are at 75.16 (75 16/32). Disregarding margin and transaction costs, what is ...

Purchase this Solution


Free BrainMass Quizzes
Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Academic Reading and Writing: Critical Thinking

Importance of Critical Thinking

Production and cost theory

Understanding production and cost phenomena will permit firms to make wise decisions concerning output volume.

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Marketing Management Philosophies Quiz

A test on how well a student understands the basic assumptions of marketers on buyers that will form a basis of their marketing strategies.