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A wealthy investor holds $ 7 0 0 , 0 0 0 worth of U . S . Treasury bonds. These bonds are currently being
A wealthy investor holds $ worth of US Treasury bonds. These bonds are currently being quoted at of par. The investor is concerned, however, that rates are headed up over the next
six months, and he would like to do something to protect this bond portfolio. His broker advises him to set up a hedge using Tbond futures contracts. Assume these contracts are now trading at
a Briefly describe how the investor would set up this hedge. Would he go long or short? How many contracts would he need?
b It's now six months later, and rates have indeed gone up The investor's Treasury bonds are now being quoted at of par, and the Tbond futures contracts used in the hedge are now trading at
Show what has happened to the value of the bond portfolio and the profit or loss made on the futures hedge.
c Was this a successful hedge? Explain.
a How would the investor set up the hedge? Select the best answer below.
A The investor needs to short Tbond futures contracts to hedge.
B The investor needs to take a long position in Tbond futures contracts to hedge.
C The investor needs to short bond futures contracts to hedge.
D The investor needs to take a long position in bond futures contracts to hedge.
b The profit or loss on the bond portfolio at the expiration date of the futures contracts is $
Round to the nearest cent. Enter a positive number for a profit and a negative number for
a loss.
The profit or loss on the futures at the expiration date of the futures contracts is $
Round to the nearest cent. Enter a positive number for a profit and a negative number for a loss.
The net profit or loss of the combined hedge portfolio is
Round to the nearest cent. Enter a positive number for a profit and a negative number for a loss.
c Was this a successful hedge? Select the best answer below.
A Yes, the profit on the short sale completely covered the loss on the bond portfolio.
B Yes, the profit on the bond portfolio completely covered the loss on the short sale.
C No the profit on the bond portfolio only partially covered the loss on the short sale.
D No the profit on the short sale only partially covered the loss on the bond portfolio.
Please help. Im messing up the quote on part B So Im off by a lot. Please explain the math steps. This is my final attempt, thank you
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