In Your Portfolio You Have $1 Million of 20-Year, 8

question 118

Multiple Choice

In your portfolio you have $1 million of 20-year, 8 5/8 percent bonds that are selling at 83.15 (or 83 15/32) against this position. Because you feel interest rates will rise, you sell 10 bond futures at 81.15 (or 81 15/32) against this position. Two months later, you decide to close your position. The bonds have fallen to 78, and the futures contracts are at 75.16 (75 16/32) . Disregarding margin and transaction costs, what is your gain or loss?

• A) $5,000 loss
• B) $500 loss
• C) breakeven
• D) $500 gain
• E) $5,000 gain

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Definitions:

Cost of Work

The total expense incurred in producing goods or services, including materials, labor, and overhead costs.

Cost of Goods Manufactured

The total cost incurred to manufacture products, including direct labor, direct materials, and manufacturing overhead, during a specific period.

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The field of accounting focused on the summary, analysis, and reporting of financial transactions pertaining to a business to external entities.

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The process of preparing management reports and accounts that provide accurate and timely financial and statistical information required by managers to make day-to-day and short-term decisions.