Hedge this portfolio against an increase in yield

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Reference no: EM131955371

a. Take a bond portfolio whose modified duration is -7; the portfolio's value is $1,000,000. How much will the portfolio value change if the yield rises by 1 basis point (0.01% or 0.0001)?

b. If you want to hedge this portfolio against an increase in yield (decline in value) using a different bond whose modified duration is -10, will you buy or sell this hedge bond? and how much in value (i.e. not principal amount) will you buy or sell?

Reference no: EM131955371

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