financial futures

Write a paper answering the following two questions:

  1. By what amount will the market value of a Treasury bond futures contract change if interest rates rise from 5% to 5.25%? The underlying Treasury bond has a duration of 10.48 years, and the Treasury bond futures contract is currently being quoted at 113-06. (Remember that Treasury bonds are quoted in 32nds.)
  2. Morning View National Bank reports that its assets have a duration of 7 years, and its liabilities average 1.75 years in duration. To hedge this duration gap, management plans to employ Treasury bond futures, which are currently quoted at 112-170 and have a duration of 10.36 years. Morning View’s latest financial report shows total assets of $100 million and liabilities of $88 million. Approximately how many futures contracts will the bank need to cover its overall exposure?

Assignment requirements:

  • Your paper addressing the questions must be 3-4 pages in length, not including your calculations, cover page, and references page.
  • Follow the CSU-Global Guide to Writing and APA.
  • Write clearly, using excellent grammar and style techniques. Be concise and logical. You are being graded, in part, on the quality of your writing. If you need assistance with your writing style, start with Tools for Effective Writing at the CSU-Global Library, which is accessible from the Library’s homepage.

Upload your responses to the Module 6 folder. You are required to submit your calculations showing how you arrived at the answers.

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