Exhibit 21.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A 3-month T-bond futures contract (maturity 20 years, coupon 6%, face $100,000) currently trades at $98,781.25 (implied yield 6.11%). A 3-month T-note futures contract (maturity 10 years, coupon 6%, face $100,000) currently trades at $101,468.80 (implied yield 5.80%). Assume semiannual compounding.
-Refer to Exhibit 21.4. Suppose the yield curve changed so the that the new yield on the T-bond contract rose to 6.5% and the new yield on the T-note contract fell to 5.5%. Calculate the profit on the NOB futures spread. (Assume coupons are paid semiannually)
A)-$5850.92
B)-$6,671.42
C)$6,671.42
D)$5850.92
E)None of the above

Question

Quizplus · Accepted Answer

The profit on the NOB futures spread is calculated by determining the change in the price of both the T-bond and T-note futures contracts due to the change in yields. The T-bond yield increased, causing its price to decrease, while the T-note yield decreased, causing its price to increase. The net effect of these changes results in a profit of $6,671.42.

Exhibit 21.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)