A Treasury bond futures contract settles at 105-8. a. What is the present value

Question

A Treasury bond futures contract settles at 105-8. a. What is the present value of the futures contract? b. If the contract settles at 105-8, are current market interest rates higher or lower than the standardized rate on a futures contract? Explain. c. What is the implied annual interest rate on the futures contract? d. Calculate the new value of the futures contract if interest rates increase by 1 percentage point annually. e. Calculate your profit or loss if you sold a futures contract at 105-8 and purchased an offsetting contract when rates increased by 1 percentage point annually.

Explanation / Answer

Due to the rules here I can only answer one of your questions. If you would like to seperate them I'd be more than happy to help you. Here is the solution to part a: a. What is the present value of the futures contract? Facts re: corporate bond issue: Bonds-face value in future $100,000 Semiannual Adj. Years to maturity 20 40 Interest payments per year 2 Current cost of debt 6% 3.00% Interest amount $ 3,000 Translated 105-8 to % 105.25000 Present value of futures position 10,525,000 Answered by: Engineer.Extraordinaire

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