Refer to Problem 12. How does consideration of basis risk change your answers? (LG 24-2)

a. Compute the number of T-bond futures contracts required to construct a macrohedge if T-bond futures are priced at 96 and the duration of the T-bond underlying the futures contract is 9 years. Also, assume that

[ΔRf /(1  +  Rf)/ΔR/(1  +  R)]  =  br  =  0.90.

b. Explain what is meant by br  =  0.90.

c. If br  =  0.90, what information does this provide on the number of futures contracts needed to construct a macrohedge?

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