Conyers Bank Holds Treasury Bonds with a Book Value of $30

question 10

Multiple Choice

Conyers Bank holds Treasury bonds with a book value of $30 million. However, the Treasury bonds currently are worth $28,387,500. How can the portfolio manager use futures markets to protect against the risk exposure of rising interest rates?

• A)Buy interest rate futures.
• B)Sell currency futures.
• C)Buy currency futures.
• D)Sell interest rate futures.
• E)Sell stock market index futures.

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Definitions:

Average Operating Assets

The average value over a period of time of assets utilized in the daily operations of a business, crucial for assessing performance.

Net Operating Income

Profits derived from a company's everyday business operations, excluding taxes and interest charges.

Variable Cost Per Unit

The expense associated with producing one additional unit of product, which changes with the level of output.

Annual Fixed Costs

Costs that do not vary with the level of production or sales volume within a certain range and time period, such as rent, salaries, and insurance.