Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Ms. Yao is a portfolio manager who is responsible for a $200 million portion of the bond portfolio of Himalayas pension fund. The current investment

Ms. Yao is a portfolio manager who is responsible for a $200 million portion of the bond portfolio of Himalayas pension fund. The current investment guidelines specify that the duration for the portfolio can be in a range of minus two and plus two of the benchmark. Currently, the duration for the benchmark is 5 and the duration for the portfolio is 5. Ms. Yao expects that the interest rate will rise sharply and thus she plans to make some adjustment to the portfolio duration by using Treasury bond futures contracts, which she is authorized to use by the pension funds investment guidelines.

  1. Please make your suggestion to Ms. Yao how she should adjust the portfolio duration. (2 marks)
  2. What position (long or short) should Ms. Yao take in Treasury bond futures to adjust the portfolio duration? (2 marks)
  3. Suppose that the dollar duration per Treasury bond futures contract (based on the cheapest-to-deliver issue) for a 50 basis point change in rates is $5,000. How many Treasury bond futures contracts must be bought or sold? (3 marks)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Financial Markets And Institutions

Authors: Anthony Saunders, Marcia Cornett

7th Edition

1259919714, 978-1259919718

More Books

Students also viewed these Finance questions

Question

Does your message reiterate its main idea?

Answered: 1 week ago