Use 3 of Futures Contracts - pure speculation with leverage effect to +92UExample 8: Today, the gross price of a 5-year bond with $1,000 principal amount is103.199. At the same moment, the price of the 5-year (meaning 5-year maturity for theunderlying bond) future contract that expires in three months is 101.521. Its nominalamount is $1,000,000, and the deposit margin is $5,000. gnivhsbm od vu8 (9)An investor with $1,000,000 at disposal anticipates that rates will decrease in a short-termperiod. He can either invest in the bond or invest in the future contract.Two months later, the price of the bond turns to be 105.227 as the future price turns to be103.537.Questions:1) if investor invests in the bond, what is his profit or loss in two months? atqz I2) if investor invest in the future contract, what is his profit or loss in two months?

Investor's Profit/Loss ScenariosWe'll analyze both scenarios: bond investment and futures contract…

Answered: Use 3 of Futures Contracts - pure…

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 19P

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4. Assume today's settlement price on a CME EUR futures contract is $1.3140/EUR. You have a short position in one contract. Your performance bond account currently has a balance of $1,700. The next three days' settlement prices are $1.3126, $1.3133, and $1.3049. Calculate the changes in the performance bond account from daily marking-to-market and the balance of the performance bond account after the third day. By assuming that you have a long position in the futures contract, solve this question again.
An investor wants to find the duration of a(n) 15-year, 6% semiannual pay, noncallable bond that's currently priced in the market at $587.05, to yield 12%. Using a 150 basis point change in yield, find the effective duration of this bond (Hint: use Equation 11.11). Question content area bottom Part 1 The new price of the bond if the market interest rate decreases by 150 basis points (or 1.5%) is $enter your response here. (Round to the nearest cent.)
7. By what amount will the market value of a Treasury bond futures contract change if interest rates rise from 5 to 5.25 percent? The underlying Treasury bond has a dura- tion of 10.48 years and the Treasury bond futures contract is currently being quoted at 113-06. (Remember that Treasury bonds are quoted in 32nds.)
Suppose the December CBOT Treasury bond futures contract has a quoted price of 80-07. What is the implied annual interest rate inherent in the futures contract? Assume this is a a 20 year bond with semi-annual interest payments. The face value of the bond is $1000, and the semi-annual coupon payments are $30.(a) 6.86%(b) 7.22%(c) 7.60%(d) 8.00%(e) 8.40%
Question 4 (a) Consider a 3-year forward contract to buy a coupon-bearing bond thatwill mature 3-years from today. The current price of the bond is $120. Suppose that on that bond 3 coupon payments of $10 are expected after 12, 24, and 36 months. We assume that the 12M, 24M, and 36M risk-free interest rates (continuously compounded) are 1.75%, $2.1, and 2.5% per annum, respectively. Determine the strike price, the forward price and the value of the forward contract.(b) 18 months later, the price of the bond is $105 and the risk-free interest rates for maturity 6M and 18M (continuously compounded) are 1.1% and 1.9% per annum, respectively. What are the strike price, the forward price and the value of the forward contract?
What is the implied interest rate on a Treasury bond ($100,000) futures contract that settled at 100’160? If interest rates increased by 1%, what wouldbe the contract’s new value?
Futures What is the implied interest rate on a Treasury bond ($100,000, 6% coupon, semiannual payment with 20 years to maturity) futures contract that settled at 100'20? Do not round intermediate calculations. Round your answer to two decimal places. 3.89 If interest rates increased by 1%, what would be the contract's new value? Do not round intermediate calculations. Round your answer to the nearest cent. % $
Q.Consider a $1,000 bond with a 6.0 coupon that matures in two years. Coupon payments are made semiannually. The current yield-to-maturity is 5.0. Calculate the convexity of the bond. Possible Options A. 4.08 B. 4.17 C. 4.29 D. 4.35 E. 4.49
CASE2: A 10-year 10 percent semiannual coupon bond, with a par value of $1,000, may be called in 4 years at a call price of $1,160. The bond sells for $1,200. (Assume that the bond has just been issued.) What is the bond's yield to maturity? What is the bond's current yield? What is the bond's capital gain or loss yield? What is the bond's yield to call? How would the price of the bond be affected by changing interest rates? (Hint: Conduct a sensitivity analysis of price to changes in the yield to maturity, which is also the going market interest rate for the bond. Assume that the bond will be called if and only if the going rate of interest falls below the coupon rate. That is an oversimplification but assume it anyway for purposes of this problem.)
A bond with a 9-year duration is worth $1,080, and its yield to maturity is 8%. If the yield to maturity falls to 7.50%, you would predict that the new price of the bond will be “approximately” _________. Group of answer choices A. $1,125 B. $1,094 C. $1,035 D. $1,036
Q.2:A 16% callable bond, having 19 years to maturity has a market price of $1400. What value you would place on this bond if the market required return is 18%. If the bond is called after 11 years and a call premium is paid, which is equal to the next 3 year's advance coupon payment (as mentioned in the indenture), should this bond be purchased or not? Give reasons to justify your answer.
A Treasury bond futures contract has a settlement price of 89’08. What is the implied annual yield?

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