2. Connie has decided to use options on the 10yr Treasury Future to hedge potential mortgage extension. The current CT has a duration of 8.5 years and a price of 100-05

a. Calculate the approximate price of the 10yr Treasury Future if rates increase by 2.0%, using the CTD duration.

b.Given the following, what could Connie expect to pay for a Treasury Future Put Option's to hedge the mortgage portfolio if rates increase 2.0%?

i. Forward Bond Price: 100-15

ii. Strike Price: 85-07 iii.

iii. Risk-Free Rate: 1.25%

iv. Expiration of Option: 1yr

v. Volatility: 15%