Question: * Please just answer b & e all other questions have been answered** Question 4. (20 points) A Treasury bond futures contract settles at 103'16.
*Please just answer b & e all other questions have been answered**
Question 4. (20 points) A Treasury bond futures contract settles at 103'16.
a. Calculate the present value of one futures contract in dollars?
| Current bond Percentage | 103.50 | 103.5% |
| Present value of future contract | $ 103,500 |
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b. Are current market interest rates higher or lower than the standardized rate on a futures contract? Explain.
c. Calculate the implied annual interest rate on the futures contract.
| Treasury bonds | $ 100,000 |
| Settle Price of 103'16 | 103.50 |
| Settle Price of bond | $ 103,500 |
| Cupon per annum | $ 6,000 |
| Implied interest rate treasury bond | 3.500% |
d. Calculate the new value of the futures contract if interest rates increase by 1 percentage point annually.
| Treasury bonds | $ 100,000 |
| Settle Price of 103'16 | 103.5 |
| Settle Price of bond | $ 103,500 |
| Coupon per annum | $ 6,000 |
| Implied interest rate treasury bond | 3.500% |
| Implied annual interest increase + 1% | 4.500% |
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| Value of the futures contract | $99,043.06 |
e. Describe differences between forward and futures contracts? Illustrate, using a specific example, of how companies could use either a futures or forward contract to hedge a position.
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