A fund manager expects to have funds to invest in three months' time and plans to buy 34 million corporate bonds, currently yielding 7.00% p.a. The manager hedges their interest rate risk using three-year Treasury bond futures contracts, currently priced at 94.500. In three months' time the fund manager buys $4 million corporate bonds at yield of 6.84% p.a. and closes out their futures market position at 95.250. What is the profit from closing out the futures position.

A fund manager expects to have funds to invest in three months' time and plans to buy 34 million corporate bonds, currently yielding 7.00% p.a. The manager hedges their interest rate risk using three-year Treasury bond futures contracts, currently priced at 94.500. In three months' time the fund manager buys $4 million corporate bonds at yield of 6.84% p.a. and closes out their futures market position at 95.250. What is the profit from closing out the futures position.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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