The market value of the bond portfolio of a French investment fund is 75 million. The duration of the portfolio is 8.17. Based on the analysis provided by the in-house economists, the portfolio manager believes that the interest rates are likely to have an unexpected decrease over the next month. Based on this belief, the manager has decided to increase the duration of its entire bond portfolio to 10. The futures contract it would use is priced at 130,000 and has a duration of 9.35. Assume that the conversion factor for the futures contract is 1.06. 

A. Would the fund need to buy futures contracts or sell?

B. Approximately, how many futures contracts would be needed to change the duration of the bond portfolio?

Answer rating: 100% (QA)

Answering your questions A Would the fund need to buy futures contracts or sell Since the portfolio ... View the full answer