You were just notified that you will receive $100,000 in 2 months from the estate of a deceased relative. You want to invest this money in safe, interest-bearing instruments, so you decide to purchase 5-year Treasury notes. You believe, however, that interest rates are headed down, and you will have to pay a lot more in 2 months than you would today for 5-year Treasury notes. You decide to look into futures and find a quote of 111–08 for 5-year Treasuries deliver-able in 2 months (contracts trade in $100,000 units). What does the quote mean in terms of price, and how many contracts will you need to buy? How much money will you need to buy the contract, and how much will you need to settle the contract?
Answer to relevant QuestionsDefine the term investment, and explain why individuals invest. What makes an asset liquid? Why hold liquid assets? Would 100 shares of IBM stock be considered a liquid investment? Explain. What are foreign investments, and what role do they play for the individual investor? During 2012, the Smiths and the Joneses both filed joint tax returns. For the tax year ended December 31, 2012, the Smiths’ taxable income was $130,000, and the Joneses had total taxable income of $65,000. a. Using the ...George Seby is thinking about doing some speculating in interest rates. He thinks rates will fall and, in response, the price of Treasury bond futures should move from 92–15, their present quote, to a level of about 98. ...
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