2. A portfolio manager has a $50 million position in IBM 8-year bonds priced at $101-03 with a modified duration of 6.7. To hedge this position the manager wishes to create a short position in a Treasury note with 7 years to maturity priced at $98-28 with a modified duration of 6.4. Both bonds are priced at the beginning of an accrual period, i.e., no accrued interest. a) What is the DV01 per $1 million for the IBM bond? b) What is the DV01 per $1 million for the Treasury note? c) What is the face amount of Treasuries the manager will sell to make the portfolio duration neutral? 2 3