It is March and Cavalier Financial Services Corporation is concerned about what an increase in...
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It is March and Cavalier Financial Services Corporation is concerned about what an increase in interest rates will do to the value of its bond portfolio. The portfolio currently has a market value of $481.1 million, and Cavaliers management intends to liquidate $1 million in bonds in June to fund additional corporate loans. If interest rates increase to 6 percent, the bond will sell for $0.96 million. Cavaliers management sells 10 June Treasury bond contracts at 109-080 in March. Interest rates do increase, and in June Cavaliers management offsets its position by buying ten June Treasury bond contracts at 100-085. What is the dollar gain/loss to Cavalier from the combined cash and futures market operations described above?
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