The Marcus Corporation plans to issue $5,000,000 of 10-year bonds at par next June, with semiannual interest payments. The company's current cost of debt is 12 percent. However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a shortposition in U. S. govern
Please see attached file.
Chapter 17 (1, 2, 5, & 11)
1. The open interest on a futures contract at any given time is the total number of outstanding:
2. Unhedged positions.
3. Clearinghouse positions.
4. Long and shortpositions.
2. In futures trading, the minimum level to which an equity posit
How might a portfolio manager use financial futures to hedge risk in each of the following circumstances:
a. You own a large position in a relatively illiquid bond that you want to sell.
b. You have a large gain on one of your long Treasuries and want to sell it, but you would like to defer the gain until the next accounting p
Suppose that you purchase a Treasury bond futures contract at $95 per $100 of face value.
a. What is your obligation when you purchase this futures contract?
b. If an FI purchases this contract, in what kind of hedge is it engaged?
c. Assume that the Treasury bond futures price falls to 94. What is your loss or gain?
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
Chapter 23. Ch 23-06 Build a Model
Problem 23-6. Use the information and data from Problem 23-5
Size of planned debt offering = $10,000,000
Anticipated rate on debt offering = 11%
Maturity of planned debt offering = 20
Number of months until debt
1) A financial institution that maintains some Treasury bond holdings decides to sell some Treasury bond futures contracts. If interest rates increase, the market value of the bond holdings will ______ and the position in futures contracts will result in a _______.
a increase; gain
b increase; loss
c decrease; gain