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What is obligation when you purchase this futures contract

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Problem 1 - Suppose you purchase a Treasury bond futures contract at a price of 95 percent of the face value, $100,000.

a. What is your obligation when you purchase this futures contract?

b. Assume that the Treasury bond futures price falls to 94 percent. What is your loss or gain?

c. Assume that the Treasury bond futures price rises to 97. What is your loss or gain?

Problem 2 - You have taken a long position in a call option on IBM common stock. The option has an exercise price of $176 and IBM's stock currently trades at $180. The option premium is $5 per contract.

a. How much of the option premium is due to intrinsic value versus time value?

b. What is your net profit on the option if IBM's stock price increases to $190 at expiration of the option and you exercise the option?

c. What is your net profit if IBM's stock price decreases to $170?

Reference no: EM132767587

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