Question $5$

You are a financial manager and

you have bonds worth $$3,000,000$

in your portfolio which have a $7$

percent coupon rate and will be

maturing in $10$ years from now.

What type of risk exposure do you

face on these bonds? Suppose a

futures contract on these bonds

is available with a standard

contract size of US $$300,000$ per

contract. How will you hedge your

exposure? If the market interest

rates change to $9$ percent, what

will be your position?