You manage a bond portfolio worth $400 million. You wish to hedge your portfolio against rise in interest rates by using T-bond futures that will mature in 9 months. The duration of your bond portfolio is 6 years, the duration of the T-bond is 7 years. The bond futures price is 98,000. (a) What action must you take and how many contracts? (b) Why do you need to use the duration of the bonds to get the answer
You manage a bond portfolio worth $400 million. You wish to hedge your portfolio against rise in interest rates by using T-bond futures that will mature in 9 months. The duration of your bond portfolio is 6 years, the duration of the T-bond is 7 years. The bond futures price is 98,000. (a) What action must you take and how many contracts? (b) Why do you need to use the duration of the bonds to get the answer
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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![You manage a bond portfolio worth $400 million. You wish to hedge your portfolio against rise in
interest rates by using T-bond futures that will mature in 9 months. The duration of your bond
portfolio is 6 years, the duration of the T-bond is 7 years. The bond futures price is 98,000, (a)
What action must you take and how many contracts? (b) Why do you need to use the duration of
the bonds to get the answer](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F648df9c1-d745-4b87-9539-aef5a235cca3%2Fe08467f3-d0dc-481b-92da-9cd71a196474%2Feawli8a_processed.jpeg&w=3840&q=75)
Transcribed Image Text:You manage a bond portfolio worth $400 million. You wish to hedge your portfolio against rise in
interest rates by using T-bond futures that will mature in 9 months. The duration of your bond
portfolio is 6 years, the duration of the T-bond is 7 years. The bond futures price is 98,000, (a)
What action must you take and how many contracts? (b) Why do you need to use the duration of
the bonds to get the answer
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