2 DECIMALS PLEASE thank you Dudley Savings Bank wishes to take a position in Tre

Question

2 DECIMALS PLEASE thank you

Dudley Savings Bank wishes to take a position in Treasury bond futures contracts, which currently have a quote of 116 100. Dudley Savings thinks interest rates will go down over the period of investment. The face value of the bond underlying the futures contract is $100,000.

Should the bank go long or short on the futures contracts?

Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts increases to 116 210. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Given your answer to part (a), calculate the net profit to Dudley Savings Bank if the price of the futures contracts decreases to 115 270. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Should the bank go long or short on the futures contracts?

Explanation / Answer

A) Bank should go long on the futures contract as fall in interest rate will lead to increase in price of future therefore long position should be taken.

B) Net profit = 100000 * {(116 + 21/32)/ 100 - (116+10/32)/100} = 343.75

C) Net profit = 100000 * {(115 + 27/32)/ 100 - (116+10/32)/100} = -468.75

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