Question: Problem 3 (7 points): Consider the following three securities: Security name Duration 5 A1 A2 A3 10 20 Convexity 10 60 150 a) (4

Problem 3 (7 points): Consider the following three securities: Security name Duration 5 A1 A2 A3 10 20 Convexity 10 60 150 a) (4 points) Assume your portfolio consists of $60,000 invested in A1 and $40,000 invested in A2. How much (in dollars) of security A3 you must sell to hedge your portfolio and what will be the convexity of your hedged portfolio? b) (3 points) Assume your portfolio consist of $100,000 invested in A1. How much (in dollars) of A2 and A3 you must buy or sell to hedge your portfolio?

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