Suppose you want to hedge a $430 million bondportfolio with a duration of 8.8 years using 10-yearTreasury note futures with a duration of 6.7 years, afutures price of 107, and 97 days to expiration. Themultiplier on Treasury note futures is $100,000. Howmany contracts do you buy or sell? (Do not roundintermediate calculations. Round your answer to thenearest whole number.)

To hedge the bond portfolio using Treasury note futures, we need to calculate the number of…

Answered: Suppose you want to hedge a $430…

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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Assume you can buy a bond that has a par value of $1000, matures in 10 years, yielding 6% and has a duration of 5. If you would like to use this bond to form a guaranteed investment contract “GIC” and offer a guaranteed rate of return to investors for certain years. a. what is the maximum yield you can offer? Why? Explain. b. For how many years would you make the guarantee? Explain.
Assume that you are considering the purchase of a 5-year, noncallable bond with an annual coupon rate of 8.00%. The bond has a face value of $1000, and it makes semiannual interest payments. If you require an 11.55% yield to maturity on this investment, what is the maximum price you should be willing to pay for the bond? Round your answer to two decimal places. For example, if your answer is $345.6671 round as 345.67 and if your answer is .05718 or 5.7182% round as 5.72.
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