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A Treasury bond futures contract settles at 95'8. Show calculations.

a. What is the present value of the futures contract in dollars?

b) Calculate the implied annual interest rate on the futures contract?

c) Calculate the new value of the futures contract if interest rates increase by 1 percentage point annually. d

d) Calculate your profit or loss if you sold a futures contract at 95-8 and purchased an offsetting contract when rates increased by 1 percentage point annually.

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Tod Thiel
Tod ThielLv2
28 Sep 2019

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The Marcus Corporation plans to issue $5,000,000 of 10-year bonds at par next June, with semiannual interest payments. The company's current cost of debt is 12 percent. However, the firm's financial manager is concerned that interest rates will increase in coming months, and has decided to take a short position in U. S. government t-bond futures. See the settlement data below for t-bond futures. (Note: One standard futures contract is $100,000)

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