USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
A three-month T-bond futures contract (maturity 20 years, coupon 6 percent, face $100,000) currently trades at $98,781.25 (implied yield 6.11 percent). A three-month T-note futures contract (maturity 10 years, coupon 6 percent, face $100,000) currently trades at $101,468.80 (implied yield 5.80%). Assume semiannual compounding.
-Refer to Exhibit 15.4. Suppose the yield curve changed so the that the new yield on the T-bond contract rose to 6.5 percent, and the new yield on the T-note contract fell to 5.5 percent. Calculate the profit on the note against bond futures spread. (Assume coupons are paid semiannually)
A) -$5850.92
B) -$6,671.42
C) $6,671.42
D) $5850.92
E) $4550.42

Question

Quizplus · Accepted Answer

The profit on the note against bond futures spread is calculated by determining the change in the price of both the T-bond and T-note futures due to the change in yields. The bond's price decreases as its yield increases, and the note's price increases as its yield decreases. The net effect of these changes results in a profit of $6,671.42.