On OCT 15, 2020 a bond portfolio manager decided to sell $60 million face value of T-bonds
Question:
On OCT 15, 2020 a bond portfolio manager decided to sell $60 million face
value of T-bonds on FEB 15, 2021. On OCT 15, 2020 this T- bond duration was DS = 7, its YTM was YS = 10% and it was trading in the spot market for $105/$100FV. Also, On OCT 15, 2020 the T-bond futures (traded on CBT) for the MAR 2021 delivery was trading for F10.15.20; 3.21 = 73–17, its duration was DF = 10 and its YTM was YF= 11%.
3.1 Use a time table to describe the hedge opened by the bond portfolio manager on OCT 15, 2020. Use the price sensitivity hedge ratio to calculate the number of T-bond futures to use in the hedge.
3.2 On FEB 15, 2021 the T-bond’s spot price was $95/$100FV and the T-bond futures for MAR 2021 delivery was traded for 62 – 03.
Use the same time table you used in 3.1 and show the bond portfolio manager
activities in both markets and calculate the total cash flow.
Expert Answer:
31 Time Table Oct 15 2020 Spot Market TBond Face Value 60 Million TBond Spot Price 105100 FV TBond D... View the full answer
