Exam 6: Interest-Rate Forwards Futures

Consider a 6×12 FRA where the underlying six-month period is 183 days and the notional is $100. The FRA fixed rate is 5%. At maturity of the contract the underlying Libor for six months is 7%. What is the settlement amount on the FRA? Assume the Actual/360 convention.

When you are short a position in a $3 \times 6$ FRA, you are effectively

All else being equal, a bond with a higher coupon has a duration that is ________ than that of a bond with a lower coupon.

Your bond portfolio has a value of $10,600,000 with a duration of 2.2 years. How many 90-day US Treasury bill futures contracts do you need to hedge this exposure if the futures contract is priced at $995,000? Assume you are carrying out duration-based hedging.

A long position in a eurodollar futures contracts expiring in June may be used to hedge interest-rate exposure resulting from a planned

Eurodollar deposits are

Suppose the duration of a bond portfolio is 2. This means

In satisfaction of a US Treasury bond futures contract, the short position delivers a 15-year 9% bond instead of the standard bond. What is the conversion factor on this delivery? Assume the last coupon on the bond was just paid.

Ceteris paribus, as interest rates rise, which of these statements is most likely to be true?

Eurodollar deposits follow the money-market day-count convention. Suppose a deposit is made for 92 days at a Libor rate of 4% on a notional amount of $100. The interest amount is

The September eurodollar contract is trading at 95. You have a 90-day borrowing commencing in September for $500,000,000 that you wish to hedge using futures. How many eurodollar futures contracts should you buy (rounded off to the nearest integer)?

You plan to borrow $1,000,000 for six months (183 days) in six months' time (182 days). The current Libor rate for six months is 6%. You want to hedge your interest-rate exposure by using 90-day eurodollar futures contracts that mature in six months. Using PVBP analysis, how 90-day eurodollar futures contracts are needed for this hedge?

You are given the following data concerning a 6×12 FRA. The first six-month period is 182 days and the second is 183 days. The Libor rate for six months is 5% and for one year is 6%. The arbitrage-free price of the 6×12 FRA, assuming the Actual/360 day-count convention, is

You anticipate a three-month borrowing in 6 months' time. To hedge the interest-rate exposure you can go either

Bonds A and B both have a duration of exactly one year. An equally-weighted portfolio of these bonds will have a duration of

You are long an $3 \times 6$ FRA and long a eurodollar futures contract expiring in 3 months. Assume the fixed rate in the FRA is the same as the rate locked-in via the eurodollar futures contract. If interest rates jump down by 100 basis points,

The payoff of the FRA has the following property

The quoted price on a 91-day Treasury bill is 5. What is the cash price of the bill?

The convexity bias between FRAs and eurodollar futures implies that

A $100,000,000 $3 \times 6$ FRA has a fixed rate of 4%. The first three-month period is for 91 days and the second one for 92 days. The 91-day Libor rate is 3% and the 183-day Libor rate is 3.5%. The value of this contract to the buyer of the FRA is