On January 1, the Listed Spot and Futures Prices of a Treasury

question 72

Multiple Choice

On January 1, the listed spot and futures prices of a Treasury bond were 95-4 and 95-6. You sold $100,000 par value Treasury bonds and purchased one Treasury bond futures contract. One month later, the listed spot price and futures prices were 95 and 94-4, respectively. If you were to liquidate your position, your profits would be a

• A) $125 loss.
• B) $125 profit.
• C) $1,060.50 loss.
• D) $1,062.50 profit.
• E) None of the options are correct.

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting the asset's consumption, wear and tear, or obsolescence.

Useful Life

The estimated duration of time an asset is expected to remain functional and economically feasible for its intended use.

Straight-Line Depreciation

A strategy for spreading out the expenditure of a physical asset over the duration of its useful life in uniform annual payments.

Residual Value

The estimated value that an asset will realize upon its sale at the end of its useful life, important in calculating depreciation.