Calculate the cash flows on the above futures contract if all interest rates increase by 1.49 percent. (That is, ΔR/(1 + R) = 1.49 percent, and 1 bp = $25.)
A)The long futures position earns a profit of $3,766.39.
B)The short futures position earns a profit of $3,725.00.
C)The long futures position earns a profit of $1.49 million.
D)The short futures position earns a profit of $1.49 million.
E)The short futures position suffers a loss of $3,725.

Question

Quizplus · Accepted Answer

When interest rates increase, the price of futures contracts typically decreases, benefiting the short position. Given that 1 basis point (bp) is equivalent to $25, a 1.49% increase (or 149 basis points) would result in a profit of 149 * $25 = $3,725 for the short position.

Calculate the Cash Flows on the Above Futures Contract If