The duration of a 3-month Treasury futures contract is 4.36 years. What is the duration of the underlying Treasury note?
A) 3.98 years
B) 4.11 years
C) 4.23 years
D) 4.36 years
E) 4.48 years

Question

Quizplus · Accepted Answer

The duration of the Treasury futures contract is 4.36 years, and the contract represents a hypothetical Treasury note with a maturity of three months. We need to convert the duration to the annual basis by dividing it by four, as there are four quarters in a year. Thus, the duration of the underlying Treasury note is:

Duration of underlying Treasury note = Duration of futures contract/4
= 4.36/4
= 1.09

Therefore, the answer is 4.11 years (which is closest to 1.09*4).

The Duration of a 3-Month Treasury Futures Contract Is 4