A fund manager expects to have funds to invest in three months' time and plans to buy $4 million corporate bonds, currently yielding 7.00% p.a. The manager hedges their interest rate risk using three-year Treasury bond futures contracts, currently priced at 93.500.

In three months' time the fund manager buys $2 million corporate bonds at yield of 6.84% p.a. and closes out their futures market position at 94.250. What is the profit from closing out the futures position.

Answer rating: 100% (QA)

Solution An interest rate futures contract is a type of futures contract which depends on the assets ... View the full answer