You currently hold a portfolio consisting of 100 of 1-year T-bill selling for $960 and $150 with 3-year 5% coupon bonds.

(Coupons are paid annually.)

You want to immunize your portfolio against small changes in interest rates by using futures contract, written on a 3-month T-bill.

(DEFINITION OF IMMUNIZE: Immunization, also known as "multiperiod immunization," is a strategy that matches the durations of assets and liabilities, thereby minimizing the impact of interest rates on the net worth.)

How many futures contracts do you need to achieve this goal?

Is it a long or short position?

The term structure is currently flat - (maybe 5% same as coupon bonds)

(DEFINTION OF THE TERM STRUCTURE OF INTEREST RATE

There is no difference between term structure and a yield curve; the yield curve is simply another name to describe the term structure of interest rates. A flat yield curve means there is little or no variation between yields and maturities, and all maturities have similar yields.This makes the yield curve parallel to the X-axis. A flat yield curve means investors are unsure about the future.)