Suppose a T-Bond futures contract has a duration of 9 years and has a current market price of $98,750. Market interest rates are 6 percent today but are expected to rise to 7.5 percent. What is the change in this futures contract's market price from this change in interest rates?

Question

Quizplus · Accepted Answer

The change in the bond's price can be estimated using the duration formula: Change in Price ≈ -Duration × (Change in Interest Rate) × Initial Price. Here, the change in interest rate is 1.5% (0.015), so the change in price ≈ -9 × 0.015 × $98,750 = -$13,331.25. The closest option is -$12,577.

Suppose a T-Bond Futures Contract Has a Duration of 9