Bond A: YTM 6%, C 9%, N 12 years semi, # of bonds = 319

Bond B = YTM 8%, C 10%, N 8 years semi, # of bonds 537

1. Calculate the price and value of each bond and the portfolio

2. Calculate each bonds duration and the weighted average duration of the portfolio

3. If the available futures is price 98, duration 5, and you desire a net short duration of negative 2, calculate the # of contracts needed.

4. Simulate a 150-bps increase in IR.

5. Prove your answer: Impact of bond portfolio + impact of futures contract must equal the simulation (desired) portfolio