USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 31

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
In late January 2004, The Union Cosmos Company is considering the sale of $100 million in 10-year bonds that will probably be rated AAA like the firm's other bond issues. The firm is anxious to proceed at today's rate of 10.5 percent. As treasurer, you know that it will take until sometime in April to get the issue registered and sold. Therefore, you suggest that the firm hedge the pending issue using Treasury bond futures contracts each representing $100,000.

-Refer to Exhibit 15.1. What is the dollar gain or loss assuming that future conditions described in Case 2 actually occur? (Ignore commissions and margin costs) .

• A) $2,965,000.00 gain
• B) $45,500.00 gain
• C) $2,965,000.00 loss
• D) $45,500.00 loss
• E) $0

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Definitions:

Countervailing Power

A concept where power in a market or industry is distributed in such a way that no single entity can dominate decisions or outcomes, effectively balancing the power dynamics.

Dominant Party

A political term that describes a party which holds a majority of legislative seats or otherwise exercises a disproportionate amount of power within a political system.

Exchange Relationship

A relationship between individuals or entities based on reciprocal exchanges of benefits or resources, often analyzed within the context of organizational behavior.

Interdependence

A situation or condition where individuals or groups are mutually reliant on each other to achieve goals or complete tasks.