Suppose in January you purchase $100,000 face value of US Treasury bonds for a price of $95,000. Suppose that the bonds mature in 15 years and that you must sell them at the end of March.

a. In row a in the table on the next page, report the gain or loss you would incur for selling the group of bonds for each of the listed potential end-of-March selling prices for bonds.

b. In row b report the gain or loss from selling a futures contract for $100,000 face value Treasury bonds for $95,000 (95 points) for end of March delivery for each of the potential end-of-March selling price for the bonds.

c. In row c report the gain or loss from purchasing a put option on $100,000 face value Treasury bond futures with a strike price of $95,000 (95 points) and a premium of $2,000 with an expiration date at the end of March for each of the potential end-of-March selling prices for the bonds.

d. Suppose that you hedge the interest-rate risk of holding these long-term bonds from January to March by selling a futures contract. What is the net result of your hedge if the price of the bonds falls to $85,000 at the end of March? What is the net result of your hedge if the price of the bonds rise to $105,000?

e. Suppose that you hedge the interest-rate risk of holding these long-term bonds from January through March by purchasing a put option on Treasury bond futures. What is the net result of your hedge if the price of the bonds falls to $85,000 at the end of March? What is the net result of your hedge if the price of the bonds rise to $105,000?

85,000 $90,000 $95,000 $100,000 $105,000 a. Selling a Treasury bond b. Selling a futures contract c. Selling a put option