The forward contract you would enter into to hedge the interest rate risk on these bonds over the coming year if the portfolio you manage is holding $25 million of 6s of 2038 Treasury bonds with a price of 110, Context Introduction: A non-standardized agreement between seller and buyer to sell or buy a commodity at a specified price on a future date is called “Forward Contract”. This agreement is used to minimize the risk of adverse fluctuation in the price of a commodity (hedging purposes). Treasury bonds are fixed-interest debt security. They have the maturity of more than 10 years and pay interest semi-annually until their maturity. After maturity, the face value of Treasury bond is paid.

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Chapter 14, Problem 12AP

To determine

The forward contract you would enter into to hedge the interest rate risk on these bonds over the coming year if the portfolio you manage is holding $25 million of 6s of 2038 Treasury bonds with a price of 110,

Context Introduction:

A non-standardized agreement between seller and buyer to sell or buy a commodity at a specified price on a future date is called “Forward Contract”. This agreement is used to minimize the risk of adverse fluctuation in the price of a commodity (hedging purposes).

Treasury bonds are fixed-interest debt security. They have the maturity of more than 10 years and pay interest semi-annually until their maturity. After maturity, the face value of Treasury bond is paid.

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