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Describe the portfolio manager expectation and action

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The market value of the bond portfolio of an Australian investment fund is $50 million. The duration of the portfolio is 9.52. Based on the analysis provided by the in-house economists, the portfolio manager believes that the interest rates are likely to have an unexpected shift over the next month. Based on this belief, the manager has decided to change the duration of its entire bond portfolio to 7.5. The futures contract it would use is priced at $130,000 and has a duration of 9.35. Assume that the conversion factor for the futures contract is 1.06.

According to the situation described above, which of the following would best describe the portfolio manager's expectation and action?

Reference no: EM132555162

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