Holooly Plus Logo
Holooly Plus Logo

Question 8.P.7: By what amount will the market value of a Treasury bond futu...

By what amount will the market value of a Treasury bond futures contract change if interest rates rise from 5 to 5.75 percent? The underlying Treasury bond has a duration of 10.48 years and the Treasury bond futures contract is currently quoted at 113-06 (Remember that Treasury bonds are quoted in 32nds)

The "Step-by-Step Explanation" refers to a detailed and sequential breakdown of the solution or reasoning behind the answer. This comprehensive explanation walks through each step of the answer, offering you clarity and understanding.
Our explanations are based on the best information we have, but they may not always be right or fit every situation.
The Blue Check Mark means that this solution has been answered and checked by an expert. This guarantees that the final answer is accurate.
Learn more on how we answer questions.

This Question has been Answered.

Subscribe

Already have an account?

Login

Related Answered Questions

A financial firm plans to borrow $75 million in the money market at a current interest rate of 4.5 percent. However, the borrowing rate will float with market conditions. To protect itself the firm has purchased an interest-rate cap of 5 percent to cover this borrowing. If money market interest

Verified Answer:
Total Interest Owed = Amount Borrowed * Interest R...

Suppose that Islander Savings Association has recently granted a loan of $2.25 million to Oyster Farms at prime plus 0.5 percent for six months. In return for granting Oyster Farms an interest cap of 7.5 percent on its loan, this thrift has received from this customer a floor rate on the loan of 5

Verified Answer:
Total Interest Owed = Amount Borrowed * Interest R...

You hedged your financial firm’s exposure to increasing interest rates by buying one December put on Eurodollar deposit futures at the premium quoted on April 15, 2008 (see exhibit 8-4).

Verified Answer:
a. How much did you pay for the put in dollars if ...

A bank is considering the use of options to deal with a serious funding cost problem. Deposit interest rates have been rising for six months, currently averaging 5 percent, and are expected to climb as high as 6.75 percent over the next 90 days. The bank plans to issue $60 million in new money

Verified Answer:
You are trying to protect the bank against rising ...

Hokie Savings wants to purchase a portfolio of home mortgage loans with an expected average return of 6.5 percent. The management is concerned that interest rates will drop and the cost of the portfolio will increase from the current price of $50 million. In six months when the funds become

Verified Answer:
Profit per contract: $109,000 - $99,000 - $700 = $...

A savings and loan’s credit rating has just slipped, and half of its assets are long term mortgages. It offers to swap interest payments with a money center bank in a $100 million deal. The bank can borrow short term at LIBOR (3 percent) and long term at 3.95 percent. The S&L must pay LIBOR plus

Verified Answer:
This SWAP agreement would have the form:   ...

What kind of futures or options hedges would be called for in the following situations?

Verified Answer:
a. Market interest rates are expected to increase ...

Your financial firm needs to borrow $500 million by selling time deposits with 180-day maturities. If interest rates on comparable deposits are currently at 4 percent, what is the cost of issuing these deposits? Suppose interest rates rise to 5 percent. What then will be the cost of these deposits?

Verified Answer:
At a rate of 4 percent the interest cost is:  ...

In response to the above scenario, management sells 500, 90-day Eurodollar time deposits futures contracts trading at an index price of 98. Interest rates rise as anticipated and your financial firm offsets its position by buying 500 contracts at an index price of 96.98. What type of hedge is this?

Verified Answer:
Firm sells Eurodollar futures at (1,000,000*[1-((2...

It is March and Cavalier Financial Services Corporation is concerned about what an increase in interest rates will do to the value of its bond portfolio. The portfolio currently has a market value of $101.1, million and Cavalier’s management intends to liquidate $1.1 million in bonds in June to

Verified Answer:
a. What is the dollar gain/loss to Cavalier from t...