Conyers Bank holds Treasury bonds with a book value of $30 million. However, the Treasury bonds currently are worth $28,387,500. The portfolio manager for Conyers Bank wishes to sell the entire issue of Treasury bonds at a current price of 87-05/32^nds. What will be the gain or loss on the cash position since the futures contract was placed? (That is, since the bonds were valued at $28,387,500.)

Question

Quizplus · Accepted Answer

To determine the gain or loss on the cash position, we need to calculate the new value of the Treasury bonds after selling them at the current price of 87-05/32.

The current price of the Treasury bonds can be converted to a decimal by adding the points to the whole number and dividing by 32.

87-05/32 = 87 + 5/32 = 87.15625

The new value of the Treasury bonds would be:

$30 million * 87.15625% = $26,146,875

The loss on the cash position would be:

$28,387,500 - $26,146,875 = $2,240,625

Therefore, the best choice is E: Loss of $2,240,625.

Conyers Bank Holds Treasury Bonds with a Book Value of $30