Question
What is the calculation for profit or loss if you sold a futures contract at 105-8 and purchased an offsetting contract when rates increased by
What is the calculation for profit or loss if you sold a futures contract at 105-8 and purchased an offsetting contract when rates increased by 1 percentage point annually?
Bond face value in the future is $100,000
Years to maturity is 20
Interest payments per year 2
Current cost of debt 6%
Semi-annual cost of debt adjustment 3%
Interest amount is $3,000
Translated 105-8 to % is 105.25%
Current value of futures position is $105,250.00
Implied annual yield is 5.5617%
New value of futures contract if interest rates increase by 1 percentage point annually is $93,793.12
Thank you!
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