On monday morning an investor takes a long position in a


1. A $1,000 par value bond matures in 4 years, pays interest semi-annually, has a coupon rate of 5.3 and has a yield-to-maturity of 4.2 percent. What is the current market price? Round your answer to the nearest cent.

2. On Monday morning, an investor takes a long position in a pound futures contract thatmatures on Wednesday afternoon. The agreed upon price is $1.780 for£62,500. At theclose of trading on Monday, the futures price has risen to $1.790. At Tuesday close,the price rises further to $1.800. At Wednesday close, the price falls to $1.785, and thecontract matures. The investor takes delivery of the pounds at the prevailing price of$1.785. Assume the initial margin is $1,620 and the maintenance margin is $1,200.Please calculate

(a) The daily cash flows on the investor’s account.

(b) Any margin call on the account.

(c) The net loss/profit on the futures contract.

(d) Show that the net loss/profit on the futures contract equals the difference betweenthe total payment on the futures contract and the total payment due on deliveryday (Wednesday) for the unhedged position.

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Financial Management: On monday morning an investor takes a long position in a
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