Assume a portfolio manager holds $1 million of 5.2 percent Tbonds due 20102015. The current market price is 7602, for a yield of 6.95 percent. The manager fears a rise in interest rates in the next three months and wishes to protect this position against such a rise by hedging in futures.

a. Ignoring weighted hedges, what should the manager do?

b. Assume Tbond futures contracts are available at 68, and the price three months later is 5912. If the manager constructs the correct hedge, what is the gain or loss on this position?

c. The price of the Tbonds three months later is 6708. What is the gain or loss on this cash position?

d. What is the net effect of this hedge