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:

Cognitive Processes

Mental actions or operations that include thinking, reasoning, problem-solving, decision-making, and memory.

Equilibrium

A state of balance or stability arising from the equal action of opposing forces.

Self-reinforcement

Administering rewards or punishments to oneself for meeting, exceeding, or falling short of one’s own expectations or standards.

Conscience

An inner feeling or voice viewed as a guide to the rightness or wrongness of one's behavior.