Question
Mr William is holding 15 untradable bonds with a nominal value of R 1,000,000 with a coupon of 15% and 5 years to maturity. The
Mr William is holding 15 untradable bonds with a nominal value of R 1,000,000 with a coupon of 15% and 5 years to maturity. The bond is priced at a premium YTM of 20 points above a tradable bond with nominal value of R 1,000,000 with a coupon rate of 12% and 4 years to maturity. The tradable bonds trades at YTM of 9%. Both bonds pay coupons semi-annually and the duration for the untradable and tradable bond is given as 7.66 and 6.66 years respectively (assume the contract size for the futures is R100,000).
what is the mduration of both tradeable and untradable bonds
How many future contracts does William need to sell short to cover my long position in the untradable bond
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