Exhibit 21.4 Use the Information Below for the Following Problem(S)

question 21

Multiple Choice

Exhibit 21.4
Use the Information Below for the Following Problem(S)
A 3-month T-bond futures contract (maturity 20 years, coupon 6%, face $100,000) currently trades at $98,781.25 (implied yield 6.11%) . A 3-month T-note futures contract (maturity 10 years, coupon 6%, face $100,000) currently trades at $101,468.80 (implied yield 5.80%) . Assume semiannual compounding.
-Refer to Exhibit 21.4.If you expected the yield curve to flatten,the appropriate NOB futures spread strategy would be

• A) Go long the T-bond and short the T-note
• B) Go short the T-bond and long the T-note
• C) Go long the T-bond and long the T-note
• D) Go short the T-bond and short the T-note
• E) None of the above

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Definitions:

At-risk Amount

The maximum amount of money an investor could lose in an investment, often used in the context of limiting losses in tax sheltered investments.

Passive Activity

Economic activities in which the taxpayer does not materially participate, often associated with rental properties or certain business investments.

Ordinary Loss

A loss incurred in the normal operation of a business, which can be used to reduce other taxable income on an owner's tax return.

Itemized Deductions

Expenses that taxpayers can subtract from their taxable income, detailed on Schedule A of the tax return.