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) -5000; -167
• D) 5,000; 167
• E) None of the above

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