What position should you take in the contract

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Reference no: EM131622882

1. What is the modified duration of a two year bond, paying 6% (p.a.) semi-annual coupons, and a (semi-annually compounded) yield of 2%?

2. You are currently managing a portfolio of bonds, worth $5 million, whose duration in six months time (assuming interest rates remain at their current levels) will be 5.6. You would like to hedge your portfolio using a six month treasury note futures contract. At present, you cheapest to deliver b will have duration 6.2. The current futures price is 95-07. What position should you take in the contract? Remember that the futures contract covers $100 000 face value of bonds.

Reference no: EM131622882

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