(20 pts). 12. Assume that you have a (long) portfolio as in the following spreadsheet. The price of the five year bond is stated as: 93-8 (remember bond prices are in 32nds) The price of the 10 year bond is stated as 103-4 (5 pts) 12a. Fill in the missing details highlighted in pink (prices, total value of each position, DV01 per position, duration, etc) escription Modified Duration (given) position (# of $1,000,000 face value bonds) Price per bond Total value of each as a decimal position DV01 per 100 face (given) DVO1 per position 3.72 18 year bond O year bond 0.0353 0.0835 8.42 12 ortfolio Duration 30 Sum of value DVO1 for portfolio Assume that you want to synthetically adjust the portfolio duration to -15. (yes negative 15) You will use a 10-year futures contract to achieve this. The 10 year futures contract has a face value of $100,000 per contract. The cheapest to deliver (CTD) bond for this contract has the following characteristics: DVO1 of CTD bond: Conversion factor for CTD bond: 0.063 per $100 face 0.976 (4 pts) 12b. Will you need to buy or sell futures contracts? (11 pts) 12c. How many futures contracts will you need to adjust duration to -15? (round to the nearest contract) (20 pts). 12. Assume that you have a (long) portfolio as in the following spreadsheet. The price of the five year bond is stated as: 93-8 (remember bond prices are in 32nds) The price of the 10 year bond is stated as 103-4 (5 pts) 12a. Fill in the missing details highlighted in pink (prices, total value of each position, DV01 per position, duration, etc) escription Modified Duration (given) position (# of $1,000,000 face value bonds) Price per bond Total value of each as a decimal position DV01 per 100 face (given) DVO1 per position 3.72 18 year bond O year bond 0.0353 0.0835 8.42 12 ortfolio Duration 30 Sum of value DVO1 for portfolio Assume that you want to synthetically adjust the portfolio duration to -15. (yes negative 15) You will use a 10-year futures contract to achieve this. The 10 year futures contract has a face value of $100,000 per contract. The cheapest to deliver (CTD) bond for this contract has the following characteristics: DVO1 of CTD bond: Conversion factor for CTD bond: 0.063 per $100 face 0.976 (4 pts) 12b. Will you need to buy or sell futures contracts? (11 pts) 12c. How many futures contracts will you need to adjust duration to -15? (round to the nearest contract)
