What is the hedge ratio of P for Z? Assume Ps coupon is 6. Here you need to calculate Ps modified duration indirectly, by first finding its dv01. (Note: If you change Ps coupon, youll get a different dv01. But as long as the yield is the same, no matter what the coupon is, modified duration is the same! Try it.)

T o Ni TI two-year note five-year note seven-year note zero-coupon bond perpetuity money market instrument M bond T F S z P M maturity, yrs 2 5 7 5 oo 3 months price 100 99.5 99 duration 1.9 4.0 5.7 yield, % 2.5 3 3.3 3.1 3.9 2 All securities above have face value 100. The durations above are not Modified. T o Ni TI two-year note five-year note seven-year note zero-coupon bond perpetuity money market instrument M bond T F S z P M maturity, yrs 2 5 7 5 oo 3 months price 100 99.5 99 duration 1.9 4.0 5.7 yield, % 2.5 3 3.3 3.1 3.9 2 All securities above have face value 100. The durations above are not Modified