22-96 Calculate the Cash Flows on the Above Futures Contract $\Delta$

question 87

Multiple Choice

22-96 Calculate the cash flows on the above futures contract if all interest rates increase by 1.49 percent.(That is, $\Delta$ R/(1 + R) = 1.49 percent,and 1 bp = $25.)

• A)The long futures position earns a profit of $3,766.39.
• B)The short futures position earns a profit of $3,725.00.
• C)The long futures position earns a profit of $1.49 million.
• D)The short futures position earns a profit of $1.49 million.
• E)The short futures position earns a loss of $3,725.

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Definitions:

Market Interest

Refers to the general level of interest rates in the market at any given time, affecting how much it costs to borrow money or the returns on investments.

Substitute Good

A product or service that consumers can use in place of another product or service, often when prices rise or the original becomes unavailable.

Wood Pulp

A material prepared from wood by a chemical or mechanical process used in the production of paper and cellulose products.

Quantity Supplied

The amount of a good or service that producers are willing and able to sell at a given price within a specified time period.