On August 1, a portfolio manager has a bond portfolio worth $10 million. The duration of the portfolio in October will be 7.7 years. The December Treasury bond futures price is currently 91-12 and the cheapest-to-deliver bond will have a duration of 8.8 years at maturity. How should the portfolio manager immunize the portfolio against changes in interest rates over the next 2 months? The treasurer should short how many contracts? (Please answer in an interger number of contracts)

On August 1, a portfolio manager has a bond portfolio worth $10 million. The duration of the portfolio in October will be 7.7 years. The December Treasury bond futures price is currently 91-12 and the cheapest-to-deliver bond will have a duration of 8.8 years at maturity. How should the portfolio manager immunize the portfolio against changes in interest rates over the next 2 months? The treasurer should short how many contracts? (Please answer in an interger number of contracts)

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Similar questions

It is November 9th. You are managing a bond portfolio worth $6 million. The duration of the portfolio in 6 months will be 9.5 years. You decide to hedge the exposure of interest rate changes in the next 6 months by using Eurodollar futures. The 3-month June Eurodollar futures price is quoted as 96.00. How should you hedge if using the June Eurodollar futures contracts? Long 12 contracts Short 12 contracts Short 58 contracts Short 230 contracts
A Treasury bond that settles on May 18, 2019, matures on December 31, 2031. The coupon rate is 9.65 percent, and the quoted price is 106 12/32. What is the bond’s yield to maturity? Payments are semi-annually.
Consider a $100 million bond portfolio with duration of 4.0 years in 3 months. The portfolio manager wants to hedge the portfolio over the next 3 months with a bond futures contract. The futures price is 122 and each futures contract is on $0.1 million of bonds. The cheapest to deliver bond is expected to have duration of 9.0 years at futures contract maturity. The manager should: (a) buy 1,844 bond futures (b) buy 364 bond futures (c) short 27 bond futures (d) short 364 bond futures (e) short 1,844 bond futures
The treasurer for Pittsburgh Iron Works wishes to use financial futures to hedge her interest rate exposure. She will sell five Treasury futures contracts at $106,000 per contract. It is July and the contracts must be closed out in December of this year. Long-term interest rates are currently 13.30 percent. If they increase to 14.50 percent, assume the value of the contracts will go down by 15 percent. Also, if interest rates do increase by 1.2 percent, assume the firm will have additional interest expense on its business loans and other commitments of $89,000. This expense, of course, will be separate from the futures contracts. a. What will be the profit or loss on the futures contract if interest rates increase to 14.50 percent by December when the contract is closed out? on futures contracts b-1. After considering the hedging, what is the net cost to the firm of the increased interest expense of $89,000? Net cost
Consider a $100 million bond portfolio with duration of 4.0 years in 3 months. The portfolio manager wants to hedge the portfolio over the next 3 months with a bond futures contract. The futures price is 122 and each futures contract is on $0.1 million of bonds. The cheapest to deliver bond is expected to have duration of 9.0 years at futures contract maturity. The manager should (a) buy 1,844 bond futures contracts (b) buy 364 bond futures contracts (c) short bond futures 27 contracts (d) short bond futures 364 contracts (e) short bond futures 1,844 contracts 1
Today is December 1, 2019. A bond with a coupon rate of 7.6% has an invoice price of $1,088. The issue date on the bond is May 1, 2018, and the maturity date on the bond is May 1, 2028. The bond makes semi-annual coupon payments on May 1 and November 1. What is the clean price on this bond?
You submit a noncompetitive bid in Dec. 2020 to purchase a 28-day RM1,000 Treasury bill, and you find that you are buying the bond for RM999.88722. What are the: a) discount rate % b) investment rate %?
If a bond is issued at the price of $10,000 per contract and promises a 5.7% interest every year, the contract will be redeemed by the issuer at a discount after 8 years for $9,200. If the market is offering a return of 4.8% for similar risk securities, what would be the price you are ready to offer for this bond?
A bond has a duration of 7.5 years. Its current market price is $1,125. Interest rates in themarket are 7 percent today. It has been forecasted that interest rates will rise to 9 percent overthe next couple of weeks. How will the bond's price change in percentage terms?A. The bond's price will rise by 2 percent.B. The bond's price will fall by 2 percent.C. The bond's price will fall by 14.02 percent.D. The bond's price will rise by 14.02 percent.
Commonstealth Bank issued a bond that pays a 7.20% coupon quarterly and matures at the end of September 2036. If the current market rate for similar bonds is 6.50%, what is the bond price at the end of October 2021? Show your workings and round your final answers to two decimal places.
Assume today is March 26th. A Treasury bond is trading at a quoted price of 94 10/32. The Treasury bond has a 7% coupon payable on June 1st and December 1st. Short term interest rates as of March 26th are 2.9% for 3 months or less and 4.8% for more than 3 months based on continuous compounding. Determine the forward cash price of the bond for August 1, 2018.
As a newly hired analyst, you are presented the following yields: 1-year 4.6%; 2-year 4.8%; 3-year 4.9%; 4-year 4.8% and 5-year 5.2%. What is the rate on a 1-year treasury Security, 4 years from now?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS