An investor holds 100,000 units of a bond whose features are summarized in the following table. He wishes to be hedged against a rise in interest rates.

Maturity	Coupon Rate	YTM	Price
18 years	9.50%	8%	114.181

Characteristics of the hedging instrument, which is here a bond are as follows:

Maturity	Coupon Rate	YTM	Price
20 years	10%	8%	119.792

Coupon frequency and compounding frequency are assumed to be semiannual. YTM stands for yield to maturity. The YTM curve is flat at an 8% level.

What is the quantity of the hedging instrument that the investor has to sell?

We suppose that the YTM curve increases instantaneously by 0.1%.

(a) What happens if the bond portfolio has not been hedged?

(b) And if it has been hedged?

Same question as the previous one when the YTM curve increases instantaneously by 2%.

Conclude. (Hint: you might want to think about the role of convexity here.)

Must be answered in excel