Problem 3. A Treasury bond futures contract settles at 105-8.

a. What is the present value of the futures contract?

b. If the contract settles at 105-8, are current market interest rates higher or lower than the standardized rate on a futures contract? Explain.

c. What is the implied annual interest rate on the futures contract?

d. Calculate the new value of the futures contract if interest rates increase by 1 percentage point annually.

e. Calculate your profit or loss if you sold a futures contract at 105-8 and purchased an offsetting contract when rates increased by 1 percentage point annually.

-------

See attached file for full problem description.

a. What is the present value of the futures contract?

b. If the contract settles at 105-8, are current market interest rates higher or lower than the standardized rate on a futures contract? Explain.

c. What is the implied annual interest rate on the futures contract?

d. Calculate the new value of the futures contract if interest rates increase by 1 percentage point annually.

e. Calculate your profit or loss if you sold a futures contract at 105-8 and purchased an offsetting contract when rates increased by 1 percentage point annually.

-------

See attached file for full problem description.

### Recently Asked Questions

- Please refer to the attachment to answer this question. This question was created from test 2.docx.

- Suppose X is a normal with zero mean and standard deviation of $10 million. a) Find the value at risk for X for the risk tolerances h=0.01, 0.02, 0.05, 0.10,

- What are typical roles and rules that one might see in a chemical dependent family? can you elaborate