Investing in a Futures Contract

question 72

Multiple Choice

Investing in a futures contract:

• A)guarantees a sale but not a sale price.
• B)can be profitable for both the buyer and the seller simultaneously.
• C)guarantees the buyer a profit on the contract.
• D)creates a gain for one party without causing a loss for the other party.
• E)can be offset by taking an opposing position.

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Definitions:

Zero-Coupon Bond

A debt security that does not pay interest (coupon) but is traded at a deep discount, rendering profit at maturity when the bond is redeemed for its full face value.

Yield to Maturity

The total return anticipated on a bond if the bond is held until it matures, reflecting interest payments and price changes.

Price Yield Curve

A graph that shows the relationship between the yield of bonds and their maturities, illustrating how interest rates affect bond prices.

Convexity

A measure of the curvature in the relationship between bond prices and bond yields that demonstrates how the duration of a bond changes as the interest rate changes.