On DEC 1, 03 a Treasury bond dealer decides to sell $50 million face value of T-bonds. The sale will take place on FEB 2, 04. On DEC 1, 03 this T-bond is trading for $102/$100 face value; its duration is 8yrs and its yield is 11%. Also, the T-bond futures for MAR 04 delivery are trading for 7313, their duration is 9yrs and they yield 15%.

2.1 Use a time table to describe the hedge opened by the T-bond dealer on DEC 1, 03 using the price sensitivity ratio.

2.2 Suppose that on FEB 2, 04 the T-bond is trading for $97/$100 face value and the T-bond futures for MAR 04 delivery is trading for 62 07. Using the same time table you used in 5.1, show the dealer activities on FEB 2, 04 and the total cash flow.

2.3 Suppose that on FEB 2, 04 the T-bond is trading for $105/$100 face value and the T-bond futures for MAR 04 delivery is trading for 77 - 09. Using the same time table you used in 5.1, show the dealer activities on FEB 2, 04 and the total cash flow.