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Unformatted text preview: Chapter 13 Practice Problem 1. If the prices of Treasury bonds ______, the value of an existing Treasury bond futures contract should ______. A) increase; be unaffected B) decrease; be unaffected C) A and B D) decrease; decrease E) decrease; increase 2. If speculators believe interest rates will _______, they would consider ______ a T-bill futures contract today. A) increase; selling B) increase; buying C) decrease, selling D) decrease; purchasing a call option on 3. Assume that a futures contract on Treasury bonds with a face value of $100,000 is purchased at 93-00. If the same contract is later sold at 94-18, what is the gain, ignoring transactions costs? A) $1,180,000 B) $118 C) $11,800 D) $15,625 E) $1,562.50 4. Leverage A) magnifies the positive returns of futures contracts. B) magnifies losses of futures contracts. C) both A and B D) none of the above 5. According to the text, when a financial institution sells futures contracts on securities in order to hedge against a change in interest rates, this is referred to as A) a long hedge. B) a short hedge. C) a closed out position. D) basis trading....
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- Spring '09