Tom Buys a Futures Contract for U

question 97

Multiple Choice

Tom buys a futures contract for U.S. Treasury bonds and on the settlement date the interest rate on U.S. Treasury bonds is lower than Tom expected. Tom will have:

• A) lost money on his long position.
• B) gained money on his long position.
• C) lost money on his short position.
• D) gained money on his short position.

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Definitions:

Absence

The state of being away from a place or the lack of something that is expected to be present.

Net Present Value

The calculation used to determine the present value of all cash flows associated with a project or investment, including initial capital outlay and all subsequent flows, discounted at a particular rate.

Electricity Bills

A periodic payment made by consumers for the electricity that they have consumed during a billing cycle.

Interest Rate

The percentage of the principal amount charged by lenders to borrowers for the use of money.