USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 140

Multiple Choice

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A three-month T-bond futures contract (maturity 20 years, coupon 6 percent, face $100,000) currently trades at $98,781.25 (implied yield 6.11 percent) . A three-month T-note futures contract (maturity 10 years, coupon 6 percent, face $100,000) currently trades at $101,468.80 (implied yield 5.80%) . Assume semiannual compounding.
-Refer to Exhibit 15.4. If you expected the yield curve to steepen, the appropriate NOTE AGAINST BOND futures spread strategy would be

• A) go long the T-bond and short the T-note.
• B) go short the T-bond and long the T-note.
• C) go long the T-bond and long the T-note.
• D) go short the T-bond and short the T-note.
• E) None of these are correct.

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Definitions:

Purchases

Transactions involving the acquisition of goods or services in exchange for payment, for the purpose of operating a business.

Mortgage Payable

A liability that represents the amount of money owed on a mortgage loan, which the borrower must repay to the lender over time.

Credit Balance

A situation where the total credits in an account exceed the total debits; often indicates amounts owed by a business.

Debit Balance

A financial statement condition where debits exceed the amount of credits in an account.