22-111 How would your results to question 109 change if basis risk shows that for every 1 percent shock to interest rates,i.e.,$\Delta$R = 0.01 and 1+R =1.10,the implied rate on the deliverable bonds in the futures market increases by 1.1 percent,i.e.,$\Delta$Rf/(1+Rf)= .011?
A)1,500 contracts.
B)1,888 contracts.
C)2,100 contracts.
D)2,408 contracts.
E)3,100 contracts.

Question

Quizplus · Accepted Answer

The correct answer is B because the implied rate on the deliverable bonds in the futures market increases by 1.1 percent, which means that the futures price will decrease by 1.1 percent. This will result in a loss of $1,888 on the futures contract.

22-111 How Would Your Results to Question 109 Change If Δ\DeltaΔ

22-111 How Would Your Results to Question 109 Change If $\Delta$