How many futures contracts should you sell

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Reference no: EM132172419

Question - On May, 12th 2018, an investor holds a fixed-income portfolio with a current market value of 10,154 million, face value of 10 million and weighted average modified duration of 7.36 years. The investor wants to hedge this long position with bond futures. Bond B is currently the CTD for the futures contract and has a conversion factor of 1.2054. Bond B: coupon rate 5.0% (semi-annual), maturity date 8/4/2030, GRY: 3.92%. The notional size of the futures contract is 100,000. The short-term interest rate is 2.96%. Settlement date is 12 May 2018 and the futures contract delivery date is 15 September 2018. How many futures contracts should you sell? Assume that all the bond calculations are on ACT/365 basis.

Reference no: EM132172419

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