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I buy a 12-year coupon bond that pays 5% coupon annually. The yield to maturity is 6% per year and Face Value of $100. There
I buy a 12-year coupon bond that pays 5% coupon annually. The yield to maturity is 6% per year and Face Value of $100. There is another bond trading in the market. It is a 7-year bond paying a 6% annual coupon with a yield to maturity of 5% and Face Value of $100. Hedge your 12-year position using this bond. How many units of the second bond should you buy/sell?
a. sell 1.3215
b. buy 1.2293
c. buy 1.3215
d. sell 1.2293
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