It is August 2 and a fund manager invested in $10 million government bonds (trading at par) is concerned about an increase in interest rates over the next 3 months. The manager decides to use the T-bond futures contract to hedge the portfolio. Current futures price is 93-02. The modified duration on the bond portfolio is 6.80 years. The CTD issue has a modified duration of 9.2 years. Devise a hedge for the manager? (Hint: You need to find the PVBP of the portfolio and the futures contract using the following formula: PVBP = - Modified Duration * P * 0.01%.).
It is August 2 and a fund manager invested in $10 million government bonds (trading at par) is concerned about an increase in interest rates over the next 3 months. The manager decides to use the T-bond futures contract to hedge the portfolio. Current futures price is 93-02. The modified duration on the bond portfolio is 6.80 years. The CTD issue has a modified duration of 9.2 years. Devise a hedge for the manager? (Hint: You need to find the PVBP of the portfolio and the futures contract using the following formula: PVBP = - Modified Duration * P * 0.01%.).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- It is August 2 and a fund manager invested in $10 million government bonds (trading at par) is concerned about an increase in interest rates over the next 3 months. The manager decides to use the T-bond futures contract to hedge the portfolio. Current futures price is 93-02.
The modified duration on the bond portfolio is 6.80 years. The CTD issue has a modified duration of 9.2 years. Devise a hedge for the manager?
(Hint: You need to find the PVBP of the portfolio and the futures contract using the following formula: PVBP = - Modified Duration * P * 0.01%.).
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