On JUL 17, 2022 a bond portfolio manager, PM, knows that he will purchase T – bonds in 2 months. On JUL 17, 2022, these T-bonds are trading in the spot market for $33,000,000.00; their Duration is 10 years; and their yield to maturity is 5%. The manager wishes to hedge the purchase with T-bond futures for MAR 2023 delivery. The MAR 2023 futures market price today is 75 – 00; their duration is 11 years and their yield to maturity is 5.5%. Using the prices sensitivity hedge ratio PM will use 440 T-bond futures in the hedge.

1. Show the complete time table today – JUL 17, 2022.

1. On SEP 18, 2022 the spot market price of the T-bonds was $40,000,000 while the T-bond futures for delivery on MAR 2023 was priced 88 – 31.  Show the end results of the hedge on 18, 2022.
2. Calculate the total cost of the T-bond futures purchased by PM without the hedge.
3. Calculate the total cost of the T-bond futures purchased by PM with the hedge.

Answer rating: 100% (QA)

Solution To calculate the end results of the hedge on September 18 2022 and the total cost of Tbond ... View the full answer