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Determining the december treasury bond futures price

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Reference no: EM133205990

On August 1, a portfolio manager has a bond portfolio worth $50 million. The duration of the portfolio in October will be 7.1 years. The December Treasury bond futures price is currently 91-12 and the cheapest-to-deliver bond will have a duration of 8.8 years at maturity.

Value of bond portfolio $50,000,000

Duration of the portfolio (years) 7.1

Duration of cheapest-to-deliver bond 8.8

Face value of a Treasury bond futures $100,000

What is the December Treasury bond futures price as a decimal?

What is the value of one December Treasury bond futures contract?

What position should the portfolio manager use to immunize the portfolio against changes in interest rates over the next two months?

Position:

Contracts:

Part B

Suppose the portfolio manager chooses to increase the bond portfolio's sensitivity to interest rates by increasing the duration of the portfolio to 10.0 years, rather than immunize the portfolio.

New duration of the portfolio (years) 10.0

What position should the portfolio manager use to change the duration from its original duration of 7.1 years to a new duration of 10.0 years over the next two months?

Position:

Contracts:

Reference no: EM133205990

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