# EXCH17 - PRACTICE PROBLEMS CHAPTER 17 TREASURY FUTURES...

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PRACTICE PROBLEMS CHAPTER 17: TREASURY FUTURES CONTRACTS Exercise 17.1: Consider a T-bond futures contract. The face value is \$100,000, the initial margin is \$3,000 and the maintenance margin is \$2,500. The daily futures prices are 101.5, 101.84, 101.66, 102.03, 101.91. What’s the total gain or loss for the long position? The short position? Which position requires a margin call? What’s the final margin account balance for each position? Exercise 17.2: Consider a ten-year T-note futures contract. The face value is \$100,000, the initial margin is \$1,500 and the maintenance margin is \$1,000. The daily futures prices are 99.34, 99.88, 100.25, 100.31, 100.66. What’s the total gain or loss for the long position? The short position? Which position requires a margin call? What’s the final margin account balance for each position? Exercise 17.3: The quoted discount rates of two U.S. T-bills and their maturities are shown below. (a) Find the forward rate (using annual compounding) that can be locked in for the purposes of borrowing between July 23, 1998 and December 17, 1998. (b) Find the rate that can locked in for the purposes of lending . (c) Find the spread between the borrowing rate and the lending rate. We’ll still assume that Price = 1 dn /360. Discount Rates: Settlement Maturity T i Bid Ask ( Offer ) 5/18/98 7/23/98 66 days 5.04% 5.02% 12/17/98 213 days 4.92% 4.90% (d) Now, the yield curve in this example is downward sloping, and so the forward rate should be less than the T 2 = 213-day rate (intuitively, the forward rate has to be low in order to “pull down” the long-term rate). However, the forward rates seem to be higher than the T 2 -discount rates. What’s going on here? Exercise 17.4: The quoted discount rates of two U.S. T-bills and their maturities are shown below. (a) Find the forward rate (using annual compounding) that can be locked in for the purposes of borrowing between August 17, 1998 and November 15, 1998. (b) Find the corresponding lending rates. Discount Rates: Settlement Maturity T i Bid Offer 6/18/98 8/17/98 60 days 6.55 6.53 11/15/98 150 days 6.70 6.68 (c) Repeat this question for the following data, i.e., find the borrowing and lending rates that can be locked in between July 18, 1998 and October 16, 1998:

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2 Discount Rates: Settlement Maturity T i Bid Offer 6/18/98 7/18/98 30 days 7.20 7.18 10/16/98 120 days 7.18 7.16 Exercise 17.5: Suppose our T-bond futures price is 99.337 and we are short traders. (a) For delivery, we have three T-bonds to choose from, Coupon Quoted price Conversion factor 12.000% 139.333 1.3781 11.250% 138.625 1.3599 7.250% 95.000 0.9159 Which is the cheapest to deliver bond?
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EXCH17 - PRACTICE PROBLEMS CHAPTER 17 TREASURY FUTURES...

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