Calculate the profit or loss from the position in the futures market if in 3 months, the contracts a

The company expects to invest approximately $1 million in three months in corporate bonds. The current rate of interest is 4.50%. To hedge the position, the company wishes to use 3-year Treasury bond futures contracts trading at 91.800. Calculate the profit or loss from the position in the futures market if in 3 months, the contracts are trading at 98.200.

3-year Treasury bond futures price at expiration = 98.200

Futures contract size = $100,000

Number of contracts = 1

Initial margin deposit = $5,000

Value of 1 basis point = $25

Profit (loss) = (98.200 - 91.800) x $25 x 1 - $5,000 = $17517.31
 

Problem-solving approach;

The company expects to invest approximately $1 million in three months in corporate bonds. The current rate of interest is 4.50%. To hedge the position, the company wishes to use 3-year Treasury bond futures contracts trading at 91.800. Calculate the profit or loss from the position in the futures market if in 3 months, the contracts are trading at 98.200.

3-year Treasury bond futures price at expiration = 98.200

Futures contract size = $100,000

Number of contracts = 1

Initial margin deposit = $5,000

Value of 1 basis point = $25

Profit (loss) = (98.200 - 91.800) x $25 x 1 - $5,000 = $17517.31