Fixed Income:

1. a.) Assume the 5-year T-note in question I is semi-annual and at par.What is the hedge ratio of that note for the 5-yr ABC note?

b.) You sell short that number of T-notes to hedge one 5-yr ABC you own.Then the Treasury yield rises by 1%.What is your net gain or loss?

c.) What if, instead, the ABC spread widens by 1%?What does this tell you about what a "Treasury hedge" does and what it cannot do?