A. LOSS OF $78,
B. GAIN OF $78,
C. LOSS OF $145,
D. GAIN OF $145, OR
E. NONE OF THE ABOVE
Answer:
A. LOSS OF $78,
We are being asked to find
the implied interest rate on a Treasury bond
futures contract that settle
rates increased by 1 percent, what would be the contract's new value? The difference in these value
Settle price on futures contract as quoted =
90
and
18
Settle price on futures contract (% of par, decimal) =
90.56250%
Implied Yield
Settle price on futures contract (% of par, decimal) =
90.56250%
Maturity of bond underlying futures contract =
20
Coupon rate on bond underlying futures contract =
6%
N=
40
= 20 years x 2 (as coupon is paid semiannually)
PV=
$905.6250
The price of a bond with a face value of $1000; negative sign becaus
=90.5625x 1000/100
PMT=
$30
semiannual coupon payment of (6% /2 =3%) x $1000 = $30
FV=
$1,000
The redemption value of the bond= Par Value = $1000
I=
3.4377%
calculated using the EXCEL function RATE; this rate corresponds to
Implied annual yield =
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 Spring '10
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 Interest Rates, Interest, Interest Rate

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