A FI has a long position in $900,000 face value Treasury Bonds. The life of thes

Question

A FI has a long position in $900,000 face value Treasury Bonds. The life of these bonds is 15 years, but the duration is 12.5 years. These bonds generate 10% yield. The current market value of these bonds is $1,050,000. The FI is taking position in the futures market in a similar asset that has face value of $100,000 per contract and currently selling for 98.5% of face value. Duration of the futures contract is 6 years and yield is 6.5%.

What will be the net gain/loss from taking a position in the futures market if %u2206R is 1%?

$2,767

$3,425

$0

-$3,220.50

$2,767

$3,425

$0

-$3,220.50

Explanation / Answer

$2,767

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