Changes in interest rates in the near term

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A portfolio manager has a bond portfolio of $50 million. The duration of the portfolio is 6.8 years.

The front month T-bond futures price is currently at: 97-17. The cheapest-to-deliver bond has a duration of 7.1 years.

How should the portfolio manager immunize the portfolio against changes in interest rates in the near term? How many contracts are needed (long or short) to hedge the risk?

Reference no: EM132602475

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