Suppose that you purchase a Treasury bond futures contract at $95 per $100 of face value.  What is your obligation when you purchase this futures contract?   If an FI purchases this contract, in what kind of hedge is it engaged?   Assume that the Treasury bond futures price falls to 94. What is your loss or gain?

Q: If you purchase a $100,000 interest-rate futures contract for 110, and the price of the Treasury…

A: The answer and the explanation is provided below:

Q: Assume that the current yield on one-year securities is 7 percent, and that the yield on a two-year…

A: one year forward rate is calculated below-1+0.06+0.0041-1+f1,11=1.0721+f1,1=1.14491.064

Q: Would a bond be more or less desirable if you learnedthat it has a sinking fund that requires the…

A: Sinking fund is the fund allocated for saving money to gradually pay off a company’s debt. The…

Q: A particular security's default risk premium is 3.70 percent. For all securities, the inflation risk…

A: Calculation of Equilibrium Rate of Return:The equilibrium rate of return is 11.00%.Excel…

Q: An investor purchases a 197 days to maturity T-Bill in the secondary market. The market interest…

A: To Find: Annual effective yield for investors

Q: Assume that the price of a forward contract is 127.87. The European options on the forward contract…

A: Given: Spot price St = 127.87 Exercise price K = 150 Time "t"= 60 days = 60/365 =0.164383561643836…

Q: For an investor who plans to purchase a bond that matures in one year, the primary concern should be…

A: The investor held the bond for 1 year so we should check the factors and will decide which factor is…

Q: a. In the above table, find the Treasury bond that matures in May 2044. What is the asked price of…

A: Par Value of Bond = $1,000 Current time period = May 2019 Maturity date = May 2044 Rate at 2044 =…

Q: On November 21, you bought one December maturity S&P 500 index futures contract at the futures price…

A: The answer is as fallows

Q: If the current risk free rate is 2.3% and a particular security (priced today at $45) pays no…

A: Given: Risk free rate = 2.3% Spot price = $45

Q: You have a large interest payment to make three months from now, and you hedge it by selling a…

A: The interest rate future contract gives an owner the right to receive or an obligation to pay the…

Q: Sweet Fields has an inventory of 12,320,000 pounds of sugar. The firm wants to place a hedge on this…

A: Solution- GivenInventory=12320000Future contracts=112000Spot rate=9.63(1)-Sweet field has to enter…

Q: Q16: "If you purchase a $100,000 interest-rate futures contract for 105, and the price of the…

A: Profit = (Price at Expiration - Purchase Price ) * 1000

Q: You wish to create a synthetic forward rate agreement in which you would lock in a return between…

A: Option A - Borrow one 150-day bond and invest in 1.02 of the 310-day bonds.

Q: "If you sell a $100,000 interest-rate futures contract for 105, and the price of the Treasury…

A: Price at Expiration = 108 Contract Price = 105

Q: Laura Cervantes. Laura Cervantes is a currency speculator and she sells eight June futures contracts…

A: Given, No. of pesos per contract = 500,000 No. of contracts = 8 Total no. of pesos = 500,000 * 8 =…

Q: Assume that Annie buys the bond at its current price of $983.80 and holds it until maturity. What…

A: Current price of Bond is $983.80 Par Value is $1000 Coupon rate is 8% Remaining time to maturity is…

Q: You have issued a loan to a wealthy friend and you are expecting a large interest payment to be made…

A: It is a future contract of an underlying asset that pays interest. It allows the buyer and seller to…

Q: Suppose for $1,000 you could buy a 10%, 10-year, annual payment bond or a 10%, 10-year, semiannual…

A: Effective annual rate of return for semi-annual bonds is more than annual bonds because of…

Q: If you buy a put option on a $100,000 Treasure bond futures contract with an exercise price of 97…

A: A put option gives the option to sell an asset at a fixed price. The holder is not under obligation…

Q: What is the present value of a security that will pay $14,000 in 20 years if securities of equal…

A: The Present Value of a security is the present worth of an amount to be received at a future date.…

Q: A particular security’s equilibrium rate of return is 8 percent. For all securities, the inflation…

A: In this question we need to compute the security’s default risk premium.

Q: Suppose you work as a broker in an investment company, and there is an expectation that the market…

A: CD are issued at discount to the face value of CD so price of CD is always some value below face…

Q: An investor enters into a long oil futures contract when the futures price is S18.0 per barrel. The…

A: A futures contract fixes the price at which transaction will be executed in the future.

Q: Suppose a bond manager owns $5 million par value of bond X which trades at $70, has a modihed…

A: Here, Modified Duration of Bond X is 6 Modified Duration of Bond Y is 3.5 Market Value of Bond X is…

Q: You submit a noncompetitive bid in Dec. 2020 to purchase a 28-day RM1,000 Treasury bill, and you…

A: Given that, Face value =RM1,000 Purchase price=RM999.88722

Q: Assume you are a speculator who purchased a IPE Brent Crude call option contract at an…

A: Call option gives holder an option to purchase the stock. it gives a right but not an obligation to…

Q: If I wish to buy a bond and the bid price is 99.54 and the ask price is 99.58, what price must I pay…

A: The difference between ask (offer/sell) price and bid (purchase/buy) price of a security is known as…

Q: A manager wishes to hedge a bond with a par value of $20 million by selling Treasury bond futures.…

A: Given: Standard deviation of bond = 0.09 Standard deviation of instrument = 0.10 Correlation = 0.85

Q: a. The bond is trading at a discount or a premium? Explain why by identifying the necessary…

A: Price of bond is present value of coupon payment plus present value of par value of bond.

Q: If, for a $1000 premium, you buy a $100,000 put option on bond futures with a strike price of 110.…

A: Call Bought at Strike Price of 110 , Put bought at strike price of 110 Initial Outflow = Premium on…

Q: If, for a $1000 premium, you buy a $100,000 call option on bond futures with a strike price of 110,…

A: Given,          Strike price =  $110  Expiration price  = $114         Premium     = $1000 Profit =…

Q: Suppose today you buy a coupon bond that you plan to sell one year later. Which of the rate of…

A:

Q: Fred enters into a futures contract to buy 10,000 pounds of cotton for $8 per pound. The initial…

A: In this we have to calculate the margin when prices fell down.

Q: Suppose a oil producer wants to hedge against possible price fluctuations in the market. For…

A: Basis in derivative market is very important.

Q: Q7: "If, for a $1000 premium, you buy a $100,000 put option on bond futures with a strike price of…

A: Profit on Put option = ($114 -$110 ) *1000 Profit on put option = $4*1000

Q: For an investor who plans to purchase a bond that matures in one year, the primary concern should be…

A: Bonds are source of investment, where the investor gets the fixed coupon payment through out the…

Q: A Eurodollar futures price changes from 99.45 to 94.32. What is the gain or loss to an investor who…

A: Gain / loss = (Selling price - purchase price) * no. of contracts

Q: What is the implied interest rate on a Treasury bond ($100,000) futures contract that settled at…

A: Treasury bond futures contract settled at 100 16 / 32% of $100,000Number of bonds = [$100,000 /…

Q: riod t= 0 price $900, with pa 3 1050 ond

A: Given:

Q: A 1-year Treasury bond currently yields 6.0%, and a 2-year bond yields 7.0%. Mr. A, an investor who…

A: 1 year spot rate (S1) = 6% 2 year spot rate (S2) = 7% We need to find the equivalent 1 year forward…

Q: Assume you have treasury note .The contract price is 124 and you can deliver either bond A with…

A: Bond conversion value With price of bond and conversion ratio, the bond conversion value is…

Q: i. If Amla buys five June Pound futures, and the spot rate at maturity is $1.2685/Pound, what is the…

A: "Since you have posted a question with multiple subparts, we will solve first three subparts for…