Question

a. Take a bond portfolio whose modified duration is -7; the portfolio's value is $1,000,000. How...

a. Take a bond portfolio whose modified duration is -7; the portfolio's value is $1,000,000. How      much will the portfolio value change if the yield rises by 1 basis point (0.01% or 0.0001)?   

b. If you want to hedge this portfolio against an increase in yield (decline in value) using a different bond whose modified duration is -10, will you buy or sell this hedge bond? and how much in value (i.e. not principal amount) will you buy or sell?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
An investor holds a bond portfolio with principal value $10,000,000 whose price and modified duration are...
An investor holds a bond portfolio with principal value $10,000,000 whose price and modified duration are respectively 112 and 9.21. He wishes to be hedged against a rise in interest rates by selling futures contracts written on a bond. Suppose the price of the cheapest-to-deliver issue is 105.2. The nominal amount of the futures contract is $100,000. The conversion factor for the cheapest-to-deliver is equal to 0.981. The cheapest-to-deliver has a modified duration equal to 8. Additionally, assume that if...
A manager is holding a $3.8 million bond portfolio with a modified duration of 7 years....
A manager is holding a $3.8 million bond portfolio with a modified duration of 7 years. She would like to hedge the risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 10 years. How many dollars' worth of T-bonds should she sell to minimize the risk of her position? (Enter your answer in dollars not in millions.) Worth of T-bonds    
A manager is holding a bond portfolio worth $19 million with a modified duration of 6...
A manager is holding a bond portfolio worth $19 million with a modified duration of 6 years. She would like to hedge the risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 8 years. How many dollars’ worth of T-bonds should she sell to minimize the variance of her position? (Enter your answer in dollars not millions rounded to the nearest dollar value.)
A manager is holding a $4.0 million bond portfolio with a modified duration of 8 years....
A manager is holding a $4.0 million bond portfolio with a modified duration of 8 years. She would like to hedge the risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 10 years. How many dollars' worth of T-bonds should she sell to minimize the risk of her position? (Enter your answer in dollars not in millions.) calculate the Worth of T-bonds $
Consider a $25 million bond portfolio having a modified duration of 7.5. Its manager would like...
Consider a $25 million bond portfolio having a modified duration of 7.5. Its manager would like to immunize the portfolio against interest rate risk using T-Bond futures. The futures contract price is 110-10 and the cheapest to deliver bond has a modified duration of 10. Determine the appropriate hedging transaction: (and why) A. Buy 170 US T-Bond futures contracts B. Sell 170 US T-Bond futures contracts C. Buy 302 US T-Bond futures contracts D. Sell 302 US T-Bond futures contracts...
The modified duration of your client’s bond portfolio worth $1 million is 5 years. By approximately...
The modified duration of your client’s bond portfolio worth $1 million is 5 years. By approximately how much does the value of the portfolio change if all yields increase by 5 basis points? (Show Work).
1) A 7%, 33-year bond has a yield-to-maturity of 10% and a modified duration of 8.32...
1) A 7%, 33-year bond has a yield-to-maturity of 10% and a modified duration of 8.32 years. If the market yield drops by 21 basis points, how much percentage change will there be in the bond’s price? 2)You can analyze the determinants of firm value using _____________________. momentum analysis technical analysis fundamental analysis none of the above
Suppose I have a $1 million worth of bond portfolio whose duration is 20. If the...
Suppose I have a $1 million worth of bond portfolio whose duration is 20. If the interest goes up by 80 basis point, how much do I make or lose with my portfolio?
If a bond portfolio has a market value of $35 million and a Macaulay duration of...
If a bond portfolio has a market value of $35 million and a Macaulay duration of 5.4 years, what is the expected change in market value for a 1% decrease of interest rates using the modified duration approximation? The portfolio has a yield-to-maturity of 7%. a. -$1.89 million b. -$1.77 million c. +$1.77 million d. +$1.89 million
Suppose you own following bond portfolio Face Value Bond Type Maturity yield to maturity Portfolio I...
Suppose you own following bond portfolio Face Value Bond Type Maturity yield to maturity Portfolio I $88 million Zero Coupon 5 years 4% You expect interest rate to rise in near future(hence decrease the value of bond portfolio). You decided to sell some of 5-year bond and use that proceed to buy 1.5-year zero coupon bonds with yield to maturity 3%. If you want new duration of the portfolio to be 3 years (that mean after selling 5-year bond and...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT