Question
Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that...
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 22.95-basis-point move in the yield on 5-year bonds. You hold a $1 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 F0 = $80. How many futures contracts should you sell? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)
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Answer #1
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