1541853 X Bb: 9615329 X Bh 1132689 X Bh 2339924 x Bb 2340028 X doc_nur X + dcdn.com/5cc71db6522fe/23400283?X-Blackboard-Expiration=1646859600000&X-Blackboard-Signature=Cq 1/2 100% + and 1. Hedging: Suppose you have a bond portfolio with face value Ports and DV01 of DV port wish to hedge interest rate risk by selling short another security with DV01 of DV hedge. You will sell the following face amount of the hedging security to be duration nuetral: == Porty x DV port + X x DV hedge = 0 Portp x DV port =- -X x DVhedge-X = Porty x DV port DV hedge You will use the Fixed IncomeFn functions in R to answer the following questions. (a) A portfolio manager purchases $50 million face of a GE (General Electric) bond and wishes to hedge it with the current 20-year on-the-run Treasury bond. Bond Specifications Specification Maturity GE Bond 10/09/2042 20-Year Treasury 11/15/2041 Coupon 4.125% 2% Payment Frequency semi-annual semi-annual Yield 4.00% 2.40% Settlement Date 2/18/2022 2/17/2022 Day Count Convention 30/360 act/act How much of the Treasury bond is required to be sold short to make the postion duration neutral? (b) If the yield for both GE and the Treasury increase 1 bp, what is the net P/L? Compute the actual P/L and not the one predicted using DV01. (c) This hedge will need to be rebalanced to make it duration neutral as yields move a sig nificant amount. Suppose you don't rebalance; then what is the actual P/L when yields rise 150 bps for both GE and the Treasury? 53 X Bb 9615329 X Bb 1132689 Bb 2339924 Bb 2340028 X doc_nur x + .com/5cc71db6522fe/23400283?X-Blackboard-Expiration=1646859600000&X-Blackboard-Signature=Cq 1 / 2 - 100% + 2. Understanding spreads: (a) What is the initial GE spread to the 20-year Treasury? (b) Suppose yields increase but the spread tightens: The GE yield rises 25 bps while the 20-year Treasury rises 30 bps. (a) What is the new GE spread to the 20-year Treasury? (b) What is the actual P/L? (c) Now let's go the other way. Suppose yields fall but the spread widens: The GE yield falls 25 bps while the 20-year Treasury falls 30 bps. (a) What is the new GE spread to the 20-year Treasury? (b) What is the actual P/L? source('Fixed Income Fn.r') # 4.a #Note: you will need to source your Junction file to load them into memory. #GE inputs: c1