You hold a futures contract to take delivery of U.S.Treasury bonds in 6 months.If the entire term structure of interest rates shifts down over the 6-month period,the value of the forward contract will have ________ the date of delivery.
A)increased in value by
B)decreased in value by
C)the same value as when obtained on
D)either decreased in value or have a zero value by
E)zero value by

Question

Quizplus · Accepted Answer

If the entire term structure of interest rates shifts down over the 6-month period, the yield on the Treasury bonds will also decrease, which will result in an increase in the value of the futures contract. This is because the contract allows you to buy the bonds at a predetermined price (the futures price), which is likely to be higher than the market price after the decline in interest rates. Therefore, the futures contract will have increased in value by the date of delivery.

You Hold a Futures Contract to Take Delivery of U