Brad, a Speculator, Expects Interest Rates to Increase and Purchases

question 60

Multiple Choice

Brad, a speculator, expects interest rates to increase and purchases a put option on Treasury bond futures with an exercise price of 95-32.The premium paid for the put option is 2-36.Just prior to the expiration date, the price of the Treasury bond futures contract is valued at 93-22.Brad exercises the option and closes out the position by purchasing an identical futures contract.Brad's net gain from this speculative strategy is $____.

• A)  812.50
• B)4,718.75
• C)  4,718.75
• D)  406.25
• E)none of the above

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Definitions:

Indentured German Families

German immigrants who came to America and worked for a fixed number of years in exchange for their passage, often in the 17th and 18th centuries.

Transportation Debt

The accumulated obligations incurred from funding the development, maintenance, and expansion of transportation infrastructure.

Spanish Colonies

Territories around the world that were once part of the Spanish Empire, marked by significant Spanish cultural and political influence from the 15th to the 19th centuries.