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FUTURES AND PROCEEDS

b 42. You have taken a short position in a futures contract on corn at $2.60 per bushel. Over the
next 5 days the contract settled at 2.52, 2.57, 2.62, 2.68, 2.70. You then decide to reverse
your position in the futures market on the fifth day at close. What is the net amount you
receive at the end of 5 days?
a. $0.00
b. $2.60
c. $2.70
d. $2.80
e. Must know the number of contracts

Difficulty level: Medium

FUTURES AND PROCEEDS


e 43. You have taken a short position in a futures contract on corn at $2.60 per bushel. Over the
next 5 days the contract settled at 2.52, 2.57, 2.62, 2.68, 2.70. Before you can reverse your
position in the futures market on the fifth day you are notified to accept delivery. What
will you receive on delivery and what is the net amount you receive in total?
a. $2.60; $-0.10
b. $2.60; $0.10
c. $2.60; $2.70
d. $2.70; $-0.10
e. $2.70; $2.60

Difficulty level: Medium

MARK TO MARKET
a 44. If you bought a futures contract for $2.60 per bushel and the contract ended at $2.70 after
several days of trading of $2.52, $2.57, $2.62, $2.68, and $2.70. What would the mark to
market sequence be?
a. -.08, .05, .05, .06, .02
b. .08, -.05, -.05, -.06, -.02
c. .08, .03, -.02, -.06, -.10
d. -.08, -.03, .02, .06, .10
e. .10, .06, .02, -.03, -.08

Difficulty level: Medium

FUTURES AND CASH FLOW


d 45. Suppose you agree to purchase one-ounce of gold for $382 any time over the next month.
The current price of gold is $380. The spot price of gold then falls to $377 the next day. If
the agreement is represented by a futures contract marking to market on a daily basis as the
price changes, what is your cash flow at the end of the business on the next day?
a. $0
b. $3
c. $5
d. $-3
e. $-5

Difficulty level: Medium


FUTURES AND CASH FLOW
d 46. On March 1, you contract to take delivery of 1 ounce of gold for $415. The agreement is
good for any day up to April 1. Throughout March, the price of gold hit a low of $385 and
hit a high of $435. The price settled on March 31 at $420, and on April 1st you settle your
futures agreement at that price. Your net cash flow is:
a. $-30.
b. $-20.
c. $-15.
d. $ 5.
e. $20.

Difficulty level: Medium

FUTURES CONTRACTS
c 47. A bank has a $50 million mortgage bond risk position which it hedges in the Treasury
bond futures markets at the Chicago Board of Trade. Approximately how many contracts
are needed to be held in the hedge?
a. 5
b. 50
c. 500
d. 5,000
e. 50,000

Difficulty level: Easy

TREASURY BOND FUTURES


b 48. A mortgage banker had made loan commitments for $10 million in 3 months. How many
contracts on Treasury bonds futures must the banker write or buy?
a. Go short 10.
b. Go short 100.
c. Go long 10.
d. Go long 100.
e. None of the above.

Difficulty level: Medium

DURATION
b 49. The duration of a 2 year annual 10% bond that is selling for par is:
a. 1.00 years.
b. 1.91 years.
c. 2.00 years.
d. 2.09 years.
e. None of the above.

Difficulty level: Medium

SWAPS
d 50. Firm A is paying $750,000 in interest payments a year while Firm B is paying LIBOR plus
75 basis points on $10,000,000 loans. The current LIBOR rate is 6.5%. Firm A and B
have agreed to swap interest payments. What is the net payment this year?
a. Firm A pays $750,000 to Firm B
b. Firm B pays $725,000 to Firm A
c. Firm B pays $25,000 to Firm A
d. Firm A pays $25,000 to Firm B
e. None of the above.

Difficulty level: Medium

NOTE PRICE
e 51. A Treasury note with a maturity of 2 years pays interest semi-annually on a 9 percent
annual coupon rate. The $1,000 face value is returned at maturity. If the effective annual
yield for all maturities is 7 percent annually, what is the current price of the Treasury note?
a. $960.68
b. $986.69
c. $1,010.35
d. $1,034.40
e. $1,038.99

Difficulty level: Medium

DURATION
c. 52. Calculate the duration of a 7-year $1,000 zero-coupon bond with a current price of
$399.63 and a yield to maturity of 14%.
a. 5 years
b. 6 years
c. 7 years
d. 8 years
e. 9 years

Difficulty level: Medium

DURATION
b 53. Calculate the duration of a 4-year $1,000 face value bond, which pays 8% coupons
annually throughout maturity and has a yield to maturity of 9%.
a. 3.29 years
b. 3.57 years
c. 3.69 years
d. 3.89 years
e. 4.00 years

Difficulty level: Medium

IV. ESSAYS

The following information should be used for problems #55 - 56:

Assets Duration Market Value


Overnight Money 0.0 $3 Million
1-year T-Bonds 0.6 $8 Million
Loans 2.20 $20 Million
Mortgages 7.50 $8 Million
Liabilities Duration Market Value
Checking Accounts 0.0 $20 Million
Short-term CD's 0.4 $4 Million
Long-term CD's 3.20 $12 Million

Equity $3 Million

54. Calculate the duration of Tiger State Bank's assets and liabilities.

DA = (3/39)(0) + (8/39)(.6) + (20/39)(2.2) +(8/39)(7.5) = 2.79 years


DL = (20/36)(0) + (4/36)(.4) + (12/36)(3.2) =1.111 years

55. What new asset duration will immunize the balance sheet?

Given DL = 1.111(see #55 above), then DA x 39 = 1.111(36) ; DA = 1.0255 years

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