You are a risk analyst in a public pension fund. You have been asked to calculate the appropriate amount of futures to hedge the bond below. What is your calculation? Bond Face: $30,000,000 Term: 10 years Coupon: 2.50% annual coupon YTM: 3% Hedge Futures contract 10 year T-note Denomination $100,000 Deliverable Notes Note 1 Term: 10 years Coupon: 2.2% payable semi annually YTM: 2.8% p.a Note 2 Term: 10 years Coupon: 2.10% payable semi annually YTM: 2.8% p.a Note 3 Term: 10 years Coupon: 2% payable semi annually YTM: 2.8% p.a Bo
Debenture Valuation
A debenture is a private and long-term debt instrument issued by financial, non-financial institutions, governments, or corporations. A debenture is classified as a type of bond, where the instrument carries a fixed rate of interest, commonly known as the ‘coupon rate.’ Debentures are documented in an indenture, clearly specifying the type of debenture, the rate and method of interest computation, and maturity date.
Note Valuation
It is the process to determine the value or worth of an asset, liability, debt of the company. It can be determined by many processes or techniques. Many factors can impact the valuation of an asset, liability, or the company, like:
You are a risk analyst in a public pension fund. You have been asked to calculate the appropriate amount of futures to hedge the bond below. What is your calculation?
Bond
Face: $30,000,000
Term: 10 years
Coupon: 2.50% annual coupon
YTM: 3%
Hedge
Futures contract 10 year T-note
Denomination $100,000
Deliverable Notes
Note 1
Term: 10 years
Coupon: 2.2% payable semi annually
YTM: 2.8% p.a
Note 2
Term: 10 years
Coupon: 2.10% payable semi annually
YTM: 2.8% p.a
Note 3
Term: 10 years
Coupon: 2% payable semi annually
YTM: 2.8% p.a
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