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Question
91-day Treasury bill rates = 9.71 percent
91-day Treasury bill futures rates = 9.66 percent
(Reminder: Treasury bill prices are calculated using the following formula:
P = FV * (1 - dt/360)
where P = price, FV = face value, d = discount yield, and t = days until maturity.)
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.
Answer
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