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

question 41

Multiple Choice

Conyers Bank holds Treasury bonds with a book value of $30 million. However, the Treasury bonds currently are worth $28,387,500. Assume that the portfolio manager sells the bonds at a price of87-05/32, and that she closes out the futures hedge position at a price of81-17/32. What will be the net gain or loss on the entire bond transaction from the time that the hedge was placed?

• A)Gain of $2,583,125.
• B)Loss of $93,750.
• C)Loss of $2,583,125.
• D)Gain of $93,750.
• E)Gain of $812,700.

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Definitions:

Common Stock

A form of corporate equity ownership, a type of security that represents ownership in a corporation, and entitles the holder to vote on corporate matters and receive dividends.

Long-term Investment

Investments made with the expectation that they will yield benefits or appreciation over a period extending beyond one year.

Dividends

Payments made by a corporation to its shareholder members, often derived from the company's profits.

Minority Active Investment

An investment where the investor holds a non-controlling interest in a company but is still actively involved in its management or operations.