91-day Treasury bill rates = 9.71 percent
91-day Treasury bill futures rates = 9.66 percent

(Reminder: Treasury bill prices are calculated using the following formula:
P = FV * (1 - d_t/360)

Where P = price,FV = face value,d = discount yield,and t = days until maturity. )

Calculate the cash flows on the above futures contract if all interest rates increase by 1.49 percent.(That is $\Delta$ R/(1 + R) = 1.49 percent,and 1 bp = $25. )

Question

91-day Treasury bill rates = 9.71 percent
91-day Treasury bill futures rates = 9.66 percent

(Reminder: Treasury bill prices are calculated using the following formula:
P = FV * (1 - d_t/360)

Where P = price,FV = face value,d = discount yield,and t = days until maturity. )

Calculate the cash flows on the above futures contract if all interest rates increase by 1.49 percent.(That is

\Delta

R/(1 + R) = 1.49 percent,and 1 bp = $25. )

Quizplus · Accepted Answer

To calculate the cash flows on the futures contract, we need to first calculate the new futures price after the increase in interest rates:
New futures price = (1 + 0.0149) x (1 - 0.0966) x $1,000,000 = $906,712.89
Next, we calculate the gain or loss on the futures contract:
Gain or loss = (New futures price - Old futures price) x $1,000,000
= ($906,712.89 - $909,487.50) x $1,000,000
= -$2,774.61 x $1,000,000
= -$2,774,610
Note that this is a loss for the short position and a gain for the long position. However, since the question only asks for the profit of the position, we change the sign to get:
Profit for short position = $2,774,610
Profit for long position = -$2,774,610
Therefore, the best answer is B, which states that the short futures position earns a profit of $3,725.00.

91-Day Treasury Bill Rates = 9 Δ\DeltaΔ R/(1 + R)= 1

91-Day Treasury Bill Rates = 9 $\Delta$ R/(1 + R)= 1