What is the total profit or loss on the futures contracts

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You have just received an inheritance of $1.5 million from your old aunt. But you will only get the money on January 15, 2022. You believe that between now and then interest rates/yields on the ten year bonds you would consider investing in at a price of $100.00 will fall to 3.00% from 5.50%? You think you could go the bond futures market to lock in much of the anticipated change in interest rates, recognizing the match would not be perfect. Presently, Futures contracts are quoted at $95.00 in the market. Assume Futures contacts are on ten year bonds and are standardized in $100,000 par value per contract. The Futures contact is based on a ten year bond, with a 6% coupon and pays interest semi-annually.

Problem a) If interest rates change as expected and Futures contracts are used to hedge the expected move in interest rates - what is the total profit or loss on the Futures contracts?

Problem b) How many contracts were used to hedge the position?

Problem c) Did the investor buy or sell Futures to offset the expected change in interest rates - answer clearly please?

Reference no: EM132958865

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