Brad Expects Interest Rates to Increase and Purchases a Put

question 5

Multiple Choice

Brad expects interest rates to increase and purchases a put option on Treasury bond futures with an exercise price of 97-00. The premium paid for the put option is 3-00. Just prior to the expiration date, the price of the Treasury bond futures contract is valued at 89-00. Brad exercises the option and closes out the position by purchasing an identical futures contract. Brad's net gain from this speculative strategy is $____, and his return on his investment is about _______ percent.

• A)5,300; 366
• B)11,000; 27
• C)- 5,000; −167
• D)5,000; 167
• E)None of these are correct.

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Definitions:

Sole Proprietorship

A business structure where a single individual owns and operates the business, personally responsible for all debts and legal actions.

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Traditional form refers to conventional or long-established ways of doing something, often contrasted with more modern methods.

Corporation

A legal entity that is separate and distinct from its owners, capable of conducting business, owning assets, and being liable for debts.

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Individuals trained in subsidiary legal matters but not fully qualified as lawyers, who perform tasks requiring knowledge of the law and legal procedures under the supervision of a lawyer.