Question
You have a $50 million portfolio that is invested 75% in stocks with a beta of 1.4 and 25% in bonds with a duration of
You have a $50 million portfolio that is invested 75% in stocks with a beta of 1.4 and 25% in bonds with a duration of 6.4 years. You want to synthetically convert the asset allocation to 60% stocks and 40% bonds for the next three months using stock and bond index futures contracts, while keeping the beta and duration of the portfolio constant. The stock index futures contract has a value of $181,667 per contract and a beta of 1.0. The bond index futures contract has a value of $104,557 per contract and a duration of 4.7 years. How many bond index futures contracts do you need?
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