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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
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. The market rate is also 7 percent. Suppose a futures contract on these bonds is available with a standard contract size of S300,000 per contract. a) if the market interest rates change to 9 percent, show through relevant calculations, how your hedge will protect you from loss. What if the interest rate in the market went down to 5%
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