How many futures contracts should you sell

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Reference no: EM133664160

Problem: Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 10 basis points for every 19.5-basis-point move in the yield on 5-year bonds. You hold a $2.4 million portfolio of 5-year maturity bonds with modified duration 4 years and desire to hedge your interest rate exposure with T-bond futures, which currently have modified duration 9 years and sell at F0 = $80. How many futures contracts should you sell?

Reference no: EM133664160

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