Now suppose a financial institution has a duration gap of -4 years and $5 million in assets. The cheapest to deliver bond for Treasury futures contracts has a duration of 3 years. How will the manager hedge this interest rate risk? Assume the cheapest to deliver bond is trading at par. 2. It is August 2 and a fund manager invested in $10 million government concerned about an increase in interest rates over the next 3 months. The manager decides to u the T-bond futures contract to hedge the portfolio. Current futures price is 93-02 bonds(trading at par) is use The modified duration on the bond portfolio is 6.80 years. The CTD issue has a modified duration of 9.2 years. Devise a hedge for the manager? Hint: You need to find the PVBP of the portfolio and the futures contract using the following formula: PVBP . Modified Duration * P * 0.01%)