Question
Part 1 Part 2 If, instead of hedging the bond portfolio above with the security maturing in November 2028, we want to use the CBOT's
Part 1\ Part 2\ If, instead of hedging the bond portfolio above with the security maturing in November 2028, we want to use\ the CBOT's US Treasury 5 year futures ($100,000 notional value). If we know the March 2024 futures\ contract has a duration of 3.9 years and we can calculate the "dollar duraction" of the above portfolio, how\ many futures contracts should we sell if today is December 1,2023?\ Round your futures hedge down to the nearest whole futures contract.\ Assume the futures contract delivery date is March 1, 2024.\ Part 3\ Assume at the time of the hedge, the futures contracts are currently trading 107-18 and have an initial margin of $3000 per contract with a\ maintenance margin of $2500 per contract.\ Then:\ I. What price must the futures contracts trade before you get a margin call?\ II. How large will the total futures margin call be at that price?\ Part 4\ Assume, the day you purchased the portfolio, the US Treasury yield curve immediately experienced\ a parallel shift of a 20 basis points increase in yields.\ IF you were not hedged, estimate how much would you make or lose.
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