Q1. On February 1 , a firm learns that it will have $10 million available on JUN 25. The firm's investment manager (IM) decides that the $10 million will be invested in a corporate bond which currently sells for $80 per $100 face value. This bond's duration is 10 and its yield is 12%. Currently, the CBT T-bond futures for JUN delivery sells for 72-06, its duration is 9 and its yield is 11%, while the CBT's T-bond futures for SEP delivery sells for 71-08, its duration is 8 and its yield is 12%. Remember that one T-bond futures covers $100,000 face value. 1.1 Use a time table to show how IM opens a hedge on February 1 , using the price sensitivity hedge ratio. 1.2 On JUN 25 , the firm buys the corporate bond for $84 per $100 face value. The T-bond futures prices on that date are 7611 for JUN delivery and 7629 for SEP delivery. Use the same time table to show the result of the hedge and calculate the total capital raised by the firm. Q2. A last settlement price of a T-bond futures was: F.settlement,T=10112. On the delivery date, T, the following four T-bonds are traded in the bond market. Given the following data on the date of delivery, determine which one of these T-bonds is the cheapest to deliver: Q1. On February 1 , a firm learns that it will have $10 million available on JUN 25. The firm's investment manager (IM) decides that the $10 million will be invested in a corporate bond which currently sells for $80 per $100 face value. This bond's duration is 10 and its yield is 12%. Currently, the CBT T-bond futures for JUN delivery sells for 72-06, its duration is 9 and its yield is 11%, while the CBT's T-bond futures for SEP delivery sells for 71-08, its duration is 8 and its yield is 12%. Remember that one T-bond futures covers $100,000 face value. 1.1 Use a time table to show how IM opens a hedge on February 1 , using the price sensitivity hedge ratio. 1.2 On JUN 25 , the firm buys the corporate bond for $84 per $100 face value. The T-bond futures prices on that date are 7611 for JUN delivery and 7629 for SEP delivery. Use the same time table to show the result of the hedge and calculate the total capital raised by the firm. Q2. A last settlement price of a T-bond futures was: F.settlement,T=10112. On the delivery date, T, the following four T-bonds are traded in the bond market. Given the following data on the date of delivery, determine which one of these T-bonds is the cheapest to deliver
