Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 7.5 basis points for every 20.25-basis- point move in the yield on 5 - year bonds. You hold a $ 1.2 million portfolio of 5-year maturity bonds with modified duration 4 years and desire to hedge your interest rate exposure with T - bond futures, which currently have modified duration 9 years and sell at F 0 = $80. How many futures contracts should you sell? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. I tried the answers 2 and 18, both of which were wrong. I don 't know how to calculate them. An expert's reply of 667 is also wrong.

Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 7.5 basis points for every 20.25-basis- point move in the yield on 5 - year bonds. You hold a $ 1.2 million portfolio of 5-year maturity bonds with modified duration 4 years and desire to hedge your interest rate exposure with T - bond futures, which currently have modified duration 9 years and sell at F 0 = $80. How many futures contracts should you sell? Note: Do not round intermediate calculations. Round your final answer to the nearest whole number. I tried the answers 2 and 18, both of which were wrong. I don 't know how to calculate them. An expert's reply of 667 is also wrong.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 5MC: What would be the value of the bond described in Part d if, just after it had been issued, the...

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