Answered

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A portfolio manager plans to use a Treasury bond futures contract to hedge a bond portfolio over the next three months. The portfolio is worth $100 million and will have a duration of 5.6 years in three months. The futures price is 112, and each futures contract is on $100,000 of bonds. The bond that is expected to be cheapest to deliver will have a duration of 9.0 years at the maturity of the futures contract. What position in futures contracts is required

Sagot :

Answer: 556

Explanation:

The position in futures contracts that is required will be calculated thus:

= (100,000,000 × 5.6) / (112,000 × 9)

= 560,000,000 / 1,008,000

= 555.5

= 556 approximately

Therefore, based on the calculation, the answer is 556.

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