USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 114

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. Suppose the yield curve changed so the that the new yield on the T-bond contract rose to 6.5 percent, and the new yield on the T-note contract fell to 5.5 percent. Calculate the profit on the note against bond futures spread. (Assume coupons are paid semiannually)

• A) -$5850.92
• B) -$6,671.42
• C) $6,671.42
• D) $5850.92
• E) $4550.42

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Definitions:

Mental Picture

A visual representation formed in the mind, which can be recalled or imagined without the physical presence of the object.

Object

In general usage, any material thing that can be seen and touched. In psychological contexts, an object can refer to a target of attention or affection.

Piaget

Jean Piaget was a Swiss psychologist known for his pioneering work in the study of child development and his theory of cognitive development that explains how children construct a mental model of the world.

Circular Reactions

Repetitive actions in early childhood development that allow infants to explore and learn about their environment.