Briefly describe the hedging strategy using the treasury

Assignment Help Portfolio Management

Reference no: EM13923650

You are the chief financial officer of a large multinational company, and six months from now you will be receiving a settlement payment of $50 million, which you plan to invest in 10-year U.S. Treasury bonds. Your interest rate forecast indicates that the yield curve will drop dramatically in the next two quarters. You are considering ways that you can guard against the possible decline in interest rates before you have the funds avail- able to invest.

a. Briefly describe the hedging strategy using the 10-year Treasury note futures contract that would provide the best protection against this possible decline in yields.

b. Suppose that six months after you have entered into a futures contract as suggested in Part a, interest rates increases in the market actually increase substantially due to an unexpected change in monetary policy. Discuss how this increase in interest rates will affect the futures position you entered into.

c. Discuss whether you would have been better off (1) with the hedge position or (2) without the hedge position in this situation.

Reference no: EM13923650

Questions Cloud

What is the projects discounted payback : Garvin enterprises is considering a project that has the following cash flow and WACC data. What is the projects discounted payback? WACC: 8.00% Year0=-$1000 Year1=$500 Year2=$500 Year3=$500

Rachel carsons book silent spring : 2) Rachel Carson's book Silent Spring showed that A) pesticides like DDT were ineffective in killing crop pests.B) scientific expertise can help shape positive environmental policies. C) industries producing harmful chemicals welcomed scientific eval..

Manufacturer of a special engineering workstation : Calpal is a small manufacturer of a special engineering workstation. The company operates one plant with a monthly capacity of 3,000 units. In addition, 750 units can be produced on an overtime basis, which is 30% more expensive, on the average.

What is the best estimate of the stocks price per share : Based on the corporate valuation model, Morgan Inc.’s total corporate value is $300 million. The balance sheet shows $90 million of notes payable, $30 million of long-term debt, $40 million of preferred stock, and $100 million of common equity. The c..

Briefly describe the hedging strategy using the treasury : Briefly describe the hedging strategy using the 10-year Treasury note futures contract that would provide the best protection against this possible decline in yields.

Common stock value and variable growth : Lawrence Industries' most recent annual dividend was $1.80 per share (D o = $1.80), and the firm's required rate of return is 11%. Find the market value of Lawrence's shares when:

Educate elementary age children in mathematics : The "Activity 5.sav" file contains a dataset of a researcher interested in finding the best way to educate elementary age children in mathematics. In particular, she believes that 5th grade girls do better in small class sizes while boys excel in ..

Calculate e(x)-var(x)-the pmf of x : Sarah is examining the concession stands before going to watch a movie. The probability that she buys candy is 0.70. If she buys candy, there is a 0.40 probability that she will also buy popcorn and soda, a 0.40 probability that she will buy only ..

What is the change in the real rate of interest : What is the growth rate of real GDP - what is the change in the real rate of interest and nominal rate of interest?

User Account

All Pages