Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

It is March and Cavalier Financial Services Corporation is concerned about what an increase in interest rates will do to the value of its bond

It is March and Cavalier Financial Services Corporation is concerned about what an increase in interest rates will do to the value of its bond portfolio. The portfolio currently has a market value of $481.1 million, and Cavaliers management intends to liquidate $1 million in bonds in June to fund additional corporate loans. If interest rates increase to 6 percent, the bond will sell for $0.96 million. Cavaliers management sells 10 June Treasury bond contracts at 109-080 in March. Interest rates do increase, and in June Cavaliers management offsets its position by buying ten June Treasury bond contracts at 100-085. What is the dollar gain/loss to Cavalier from the combined cash and futures market operations described above?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Short Term Financial Management

Authors: John Zietlow, Matthew Hill, Terry Maness

5th Edition

1516512405, 9781516512409

More Books

Students also viewed these Finance questions

Question

Describe the predominance of new ventures in the economy.

Answered: 1 week ago

Question

What is the purpose of a customized benefits plan?

Answered: 1 week ago

Question

What are topics included within employee services?

Answered: 1 week ago