Clarke plans to satisfy cash needs in nine months by selling its Treasury bond h
ID: 2803345 • Letter: C
Question
Clarke plans to satisfy cash needs in nine months by selling its Treasury bond holdings for $4 million. However, Clarke is concerned that interest rates might increase over the next three months. To hedge against this possibility, Clarke plans to sell Treasury bond futures. Thus, Clarke sells ____ futures contract for a price of 99-12. Assuming that the actual price of the futures contract declined to 97-20, Clarke would make a ____ of $____ from closing out the futures position.
a.
40; profit; $76,800
b.
40; loss; $76,800
c.
50; profit; $70,000
d.
40; profit; $70,000
e.
none of the above
a.
40; profit; $76,800
b.
40; loss; $76,800
c.
50; profit; $70,000
d.
40; profit; $70,000
e.
none of the above
Explanation / Answer
The correct option is d ie 40,profit and $70000.
He sells 40 future contracts and make profit of $70000.