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

question 35

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 steepen,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:

Increasing Prices

A situation where the cost of goods or services rises over a period of time, often due to factors like inflation or increased demand.

Income Tax Expense

The cost incurred by businesses or individuals due to the taxes on their income.

Inventory Flow Assumption

Pertains to the method used by a business to account for the order in which inventory is sold or used over time.

Beginning Inventory

The cost of merchandise on hand for sales at the commencement of an accounting cycle.