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The following information relates to Questions 9-12 Sarah Tomori, a former star basketball player for the NY Liberty is now a a fixed income analyst

The following information relates to Questions 9-12

Sarah Tomori, a former star basketball player for the NY Liberty is now a a fixed income analyst at Chelsea Investments. Tomori specializes in money market instruments. She is exploring whether her fund should be equal weight, underweight or overweight duration for the upcoming year. Target duration is typically 12 months, but Tomori is permitted to drift from the target duration by plus or minus 4 months depending on her view of the market. As part of her initial research, Tomori investigates the market for Fed Fund Futures. Tomori believes she can extract the market expectations of short-term interest rate changes from the futures market. Current Fed Fund market detail is as follows:

The current federal funds rate target range is set between 2.75% and 3.00%. The strip of monthly expiry Fed Fund futures is shown below. ZQJO is the future expiring on the last day in Apr 2020 and ZQJ1 is the future expiring on the last date in Apr 2021. Final settlement occurs on the first business day following the last trading day.

ZQJ0

ZQK0

ZQMO

ZQNO

ZQQ0

ZQU0

ZQV0

ZQX0

ZQZ0

ZQF1

ZQG1

ZQH1

ZQJ1

97.125

97.105

97.085

97.045

96.955

96.95

96.865

96.845

96.625

96.620

96.595

96.880

96.870

The Federal Open Market Committee (FOMC), the 12-member group that sets the Fed Funds discount rate is scheduled to meet on the dates shown below. Assume the FOMC always changes the target rate range in increments of 25bp.

Meeting Date

Days to Meeting

29 Apr 20

18

10 Jun 20

60

29 Jul 20

109

16 Sep 20

158

5 Nov 20

209

16 Dec 20

249

27 Jan 21

291

37 Mar 3

340

9. Based upon the implied Fed funds rate, market participants expect the Fed Funds rate after the 29 Apr 20 Fed meeting to be closest to

  1. 2.75%

  2. 2.90%

  3. 3.15%

10. The probability of a 25bp Fed funds hike at the 16 Sep 20 FOMC meeting, implied by the futures market is closest to

  1. 100%

  2. 50%

  3. 70%

11. The term structure of Fed Funds implied by the futures market is

  1. Upward sloping

  2. Upward sloping, then a drop

  3. Downward sloping

12. In addition to analyzing market expectation of short-term interest rate changes, Tomori is trying to determine the markets inflation expectations. To evaluate the markets inflation expectations, Tomori is most likely to assess

  1. VIX futures market

  2. US TIPS market

  3. Dividend swap market

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