EBK INVESTMENTS
EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 23, Problem 15PS
Summary Introduction

To calculate: The Number of selling future contracts with the help of given information.

Introduction: Future contracts are the agreement between buyer and seller to exchange their commodities in future time at a specific price of the item. Short term bonds are more unpredictable than the long term.

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Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 7.5 basis points for every 20.25-basis- point move in the yield on 5 - year bonds. You hold a $ 1.2 million portfolio of 5-year maturity bonds with modified duration 4 years and desire to hedge your interest rate exposure with T - bond futures, which currently have modified duration 9 years and sell at F 0 = $80. How many futures contracts should you sell? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. I tried the answers 2 and 18, both of which were wrong. I don 't know how to calculate them. An expert's reply of 667 is also wrong.
Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 10 basis points for every 15-basis-point move in the yield on 5-year bonds. You hold a $1 million portfolio of 5-year maturity bonds with modified duration 4 years and desire to hedge your interest rate exposure with T-bond futures, which currently have modified duration 9 years and sell at F0 = $95. How many futures contracts should you sell?
Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 10 basis points for every 15-basis-point move in the yield on 5-year bonds. You hold a $1 million portfolio of 5-year maturity bonds with modified duration 4 years and desire to hedge your interest rate exposure with T-bond futures, which currently have modified duration 9 years and sell at Fo= $95. How many futures contracts should you sell? (Do not round intermediate calculations. Round your final answer to the nearest whole number.) Number of future contracts
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