A portfolio manager follows a duration-matched strategy in his funds. His bond portfolio has a duration of 5.3 years, with a market value $8,400,500. He plans to reduce the duration of his bond portfolio to 4.5 years. Assume that he can use 5-year T-note futures contracts to hedge the risk, with one-tick changes in interest rates, this futures contract value will change by $25. Calculate the number of futures contracts that the manager should long or short.

A portfolio manager follows a duration-matched strategy in his funds. His bond portfolio has a duration of 5.3 years, with a market value $8,400,500. He plans to reduce the duration of his bond portfolio to 4.5 years. Assume that he can use 5-year T-note futures contracts to hedge the risk, with one-tick changes in interest rates, this futures contract value will change by $25. Calculate the number of futures contracts that the manager should long or short.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 5P

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