If the portfolio manager put on the hedge when T-bond futures were quoted at 89-00/32^nds, what is the profit/loss on the futures position if the settlement price is 81-27/32^nds? A)Profit of $2,146,875. B)Loss of $2,146,875. C)Profit of $1,270,000. D)Loss of $1,270,000. E)Loss of $812,700.

Question

Quizplus · Accepted Answer

The profit/loss is calculated by the change in the futures price multiplied by the contract size. The initial price is 89-00 (or 89.00), and the settlement price is 81-27 (or 81.84375). The change is 89.00 - 81.84375 = 7.15625. Assuming a standard T-bond futures contract size of $100,000, the profit is 7.15625 * $100,000 = $715,625 per contract. If the total profit is $2,146,875, it implies there were 3 contracts (since 3 * $715,625 = $2,146,875).

If the Portfolio Manager Put on the Hedge When T-Bond