Question

problem 2: suppose you purchase a treasury bond futures contract at a price of 95 percent of the face value, $100,000. a. what is your obligation when you purchase this futures contract? b. assume that the treasury bond futures price falls to 94 percent. what is your loss or gain? c. assume that the treasury bond futures price rises to 97. what is your loss or gain?

Answer 1

When purchasing a treasury bond futures contract at 95 percent of face value, your obligation is to buy the underlying bond at the agreed upon price. If the futures price falls to 94 percent, you would incur a loss. If the futures price rises to 97 percent, you would gain.

Step-by-step explanation:

a. When you purchase a treasury bond futures contract at a price of 95 percent of the face value, your obligation is to buy the underlying treasury bond at the agreed upon price when the contract expires.

b. If the treasury bond futures price falls to 94 percent, it means that the value of the underlying Treasury bond has decreased. As a result, your loss would be the difference between the purchase price (95 percent of $100,000) and the current value (94 percent of $100,000).

c. If the treasury bond futures price rises to 97 percent, it means that the value of the underlying Treasury bond has increased. As a result, your gain would be the difference between the purchase price (95 percent of $100,000) and the current value (97 percent of $100,000).