Question
A portfolio is worth $24,000,000. The futures price for a Treasury note futures contract is $110 and each contract is for the delivery of bonds
A portfolio is worth $24,000,000. The futures price for a Treasury note futures contract is $110 and each contract is for the delivery of bonds with a face value of $100,000. On the delivery date the duration of the bond that is expected to be cheapest to deliver is 6 years and the duration of the portfolio will be 5.5 years.
a. How many contracts are necessary for hedging the portfolio?
b. How would this change if the futures price for a Treasury notes futures contract dropped to $100?
c. Would it be worthwhile to hedge the portfolio after this futures price reduction?
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