You Hold a $50 Million Portfolio of Par Value Bonds

question 40

Multiple Choice

You hold a $50 million portfolio of par value bonds with a coupon rate of 10 percent paid annually and 15 years to maturity.How many T-bond futures contracts do you need to hedge the portfolio against an unanticipated change in the interest rate of 0.18%? Assume the market interest rate is 10 percent and that T-bond futures contracts call for delivery of an 8 percent coupon (paid annually) ,20-year maturity T-bond.

• A)398 contracts long
• B)524 contracts short
• C)1048 contracts short
• D)398 contracts short
• E)none of the above

Analyze the effects of priming on recall speed and accuracy.

Describe the process and effects of mental visualization on memory and judgment.

Understand the role and limitations of heuristics in cognitive problem-solving.

Explain the influence of availability and representativeness heuristics on judgment and decision-making.

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Definitions:

Outstanding Shares

The total shares of stock that are currently owned by all shareholders, including share blocks held by institutional investors and restricted shares owned by company insiders.

Rights Offering

A corporate action in which a company offers existing shareholders the opportunity to buy additional shares directly from the company at a discounted price before the public.

Market Price

The current quoted price for the exchange of an asset or service.

Subscription Price

The cost at which an investor can buy shares or units of a mutual fund or any other investment.