Question

On January 1, the listed spot and futures prices of a Treasury bond were 95.4 and 95.6. You sold $100,000 par value Treasury bonds and purchased one Treasury bond futures contract. One month later, the listed spot price and futures prices were 95 and 94.4, respectively. If you were to liquidate your position, your profits would be a

Answer 1

If you were to liquidate your position, your profits would be $800

Step-by-step explanation:

Given the data in the question;

On the first of January, listed spot and futures prices of a Treasury bond were 95.4 and 95.6.

After a month, the listed spot price and futures prices were 95 and 94.4.

sold $100,000 par value Treasury bonds and purchased one Treasury bond futures contract.

Now,

we determine the Change in the value of bond purchased in spot

⇒ ( 95 - 95.4 )% × $100,000

= -0.4% × $100,000

= -$400

Next, we determine the Change in the value of bond sold in futures

⇒ ( 95.6 - 94.4 )% × $100,000

= 1.2% × $100,000

= $1200

Hence, change in the value of combined position will be;

⇒ ( -$400 ) + ( $1200 ) = $800

Therefore, If you were to liquidate your position, your profits would be $800