A fund manager expects to have funds to invest in three months' time and plans to buy 34 million corporate bonds, currently yielding 7.00% p.a. The manager hedges their interest rate risk using three-year Treasury bond futures contracts, currently priced at 94.500. In three months' time the fund manager buys $4 million corporate bonds at yield of 6.84% p.a. and closes out their futures market position at 95.250. What is the profit from closing out the futures position.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter22: International Financial Management
Section: Chapter Questions
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A fund manager expects to have funds to invest in three months' time and plans to buy $4 million corporate
bonds, currently yielding 7.00% p.a. The manager hedges their interest rate risk using three-year Treasury bond
futures contracts, currently priced at 94.500.
In three months time the fund manager buys $4 million corporate bonds at yield of 6.84% p.a. and closes out
their futures market position at 95.250. What is the profit from closing out the futures position.
Transcribed Image Text:A fund manager expects to have funds to invest in three months' time and plans to buy $4 million corporate bonds, currently yielding 7.00% p.a. The manager hedges their interest rate risk using three-year Treasury bond futures contracts, currently priced at 94.500. In three months time the fund manager buys $4 million corporate bonds at yield of 6.84% p.a. and closes out their futures market position at 95.250. What is the profit from closing out the futures position.
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