A $300 million bond portfolio currently has a modified duration of 6.53. By using a futures contract priced at $105,250, the portfolio manager wants to reduce potential loss of the bond portfolio to $30 million when the yield on the bond portfolio increase by 2%. The futures contract has an implied modified duration of 9.25. The manager estimates that the yield on the bond portfolio is about 12% more volatile than the implied yield on the futures contract.

A) Indicate whether the portfolio manager should enter a short or long futures position.

B) Calculate the target modified duration of the bond portfolio.

C) Calculate the number of futures contracts needed to achieve what the manager wants to do.