Conyers Bank holds U.S.Treasury bonds with a book value of $30 million.However, the U.S.Treasury bonds currently are worth $28,387,500. If the portfolio manager put on the hedge when T-bond futures were quoted at 89-00/32^nds, what is the profit/loss on the futures position if the settlement price is 81-27/32^nds? A)Profit of $2,146,875. B)Loss of $2,146,875. C)Profit of $1,270,000. D)Loss of $1,270,000. E)Loss of $812,700.

Question

Quizplus · Accepted Answer

The profit on the futures position is calculated by the change in the futures price. The initial price was 89-00/32nds and the settlement price was 81-27/32nds. The change in price is (89 - 81.84375) = 7.15625 points. Each point is worth $1,000 for a standard T-bond futures contract. Therefore, the profit is 7.15625 * $1,000 * 30 = $2,146,875.

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