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Example of Interest Rate Microhedge - FI intends to sell its Tbond portfolio in 60 days to underwrite an $11.33m investment project. The Tbonds are
Example of Interest Rate Microhedge - FI intends to sell its Tbond portfolio in 60 days to underwrite an $11.33m investment project. The Tbonds are 15 yr 6% p.a. coupon with FV=$10m and yield of 4.75% pa. T-bond MV = $11.33m. - Step 1: Analyze the risk of cash position. Calculate duration : 10.42 yrs. Risk that price (interest rates) will decline (increase) over the next 60 days. Assume a 50 bp unanticipated increase in Tbond spot interest rates: AE m 438]?S ARE rams) = 10.42($1 133111390050) 1.02375 2 - $576,600 Step 2: Loss of $576,600 on position when Tbond spot rates increase 50 bp
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