You were just notified that you will receive $100,000 in two months from the estate of a deceased relative. You want to invest this money in safe, interest-bearing instruments, so you decide to purchase five-year Treasury notes. You believe, however, that interest rates are headed down, and you will have to pay a lot more in two months than you would today for five-year Treasury notes. You decide to look into futures, and find a quote of 111-22.7 for five-year Treasuries deliverable in two months (contracts trade in $100,000 units and require an initial margin is $680).

What does the quote mean in terms of price, and how many contracts will you need to buy? How much money will you need to buy the contract, and how much will you need to settle the contract?

5-year Treasury notes are quoted at a par value of $100,000. Which of the following is the best answer? (Select the best answer below.)

A.Prices are quoted in increments of 1/100 of 1%, so the quote of11122.7 translates into 11122.7/100, which converts to a quote of 111.2270% of par. Five-year Treasury notes have a par value of $100,000, so you will need to buy one contract.

B.Prices are quoted in increments of 1/100 of 1%, so the quote of11122.7 translates into 11122.7/100, which converts to a quote of 111.2270% of par. Five-year Treasury notes have a par value of $10,000, so you will need to buy ten contracts.

C.Prices are quoted in increments of 1/32 of 1%, so the quote of11122.7 translates into 11122.7/32, which converts to a quote of 111.70938% of par. Five-year Treasury notes have a par value of $10,000, so you will need to buy ten contracts.

D. Prices are quoted in increments of 1/32 of 1%, so the quote of11122.7 translates into 11122.7/32, which converts to a quote of 111.70938% of par. Five-year Treasury notes have a par value of $100,000, so you will need to buy one contract.

Part 2

The initial margin deposit, or the amount money you will need to buy the contract, is $. enter your response here. (Round to the nearest dollar.)

Part 3

The amount you will need to settle the contract is $ enter your response here.

(Round to the nearest cent.)