7. To exploit an expected increase in interest rates, an investor should A. take a long position in Treasury bond futures. B. long S&P 500 Index futures. C. take a long position in wheat futures. D. short Treasury bond futures. E. short S&P 500 Index futures.
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When interest rates increase, bond prices fall. Show more…
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To exploit an expected increase in interest rates, an investor would most likely:_______.a. sell Treasury bond futures. b. take a long position in wheat futures.
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Questions 4 to 10 refer to the following information. Conyers Bank holds U.S. Treasury bonds with a book value of $30 million and a duration of 11.25 years. The U.S. Treasury bonds are currently worth $28,387,500 and yield 12%. The Bank is currently considering hedging the risk relating to these Treasury bonds by using Treasury bond futures. Treasury bond futures are currently priced at 94.20 and have a $100,000 par value. What would be the impact on the price per US Treasury bond futures if the interest rate increases by 25 basis points? Recall: Treasury Notes and Bonds are quoted at 32nds of a dollar. A: $2,365.51 increase B: $2,376.19 decrease C: $2,365.51 decrease D: $2,376.19 increase E: No impact
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Meta: Consider the futures contract written on the S&P 500 index and maturing in one year. The interest rate is 5%, and the future value of dividends expected to be paid over the next year is $80. The current index level is 3,000. Assume that you can short sell the S&P index. Required: Suppose the expected rate of return on the market is 10%. What is the expected level of the index in one year? What is the theoretical no-arbitrage price for a 1-year futures contract on the S&P 500 stock index? Suppose the actual futures price is 3,054. Is there an arbitrage opportunity here? a. Expected level of the index b. Price c. Is there an arbitrage opportunity here?
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