You are worried that interest rates might go up in 3 months and that your portfolio...

 

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You are worried that interest rates might go up in 3 months and that your portfolio might lose value. You have at your disposition Treasury bond futures contracts trading at 94-04. Assume your portfolio duration in 3 months is expected to be 4.8 years and that the cheapest-to-deliver bond in 3 months will have a 7.7 year duration a) Do you go long or short with the contracts? b) How many contracts do you buy or sell? c) Suppose that interest rates did indeed go up, and that your portfolio went down to $302 million (i.e. the bond portfolio lost $38 million): The new futures price quote is 77-10. Show the Dolllar gains on the futures contracts position. Show your net Dollar gains/losses combining the bond portfolio loss with the futures contracts gains. You are worried that interest rates might go up in 3 months and that your portfolio might lose value. You have at your disposition Treasury bond futures contracts trading at 94-04. Assume your portfolio duration in 3 months is expected to be 4.8 years and that the cheapest-to-deliver bond in 3 months will have a 7.7 year duration a) Do you go long or short with the contracts? b) How many contracts do you buy or sell? c) Suppose that interest rates did indeed go up, and that your portfolio went down to $302 million (i.e. the bond portfolio lost $38 million): The new futures price quote is 77-10. Show the Dolllar gains on the futures contracts position. Show your net Dollar gains/losses combining the bond portfolio loss with the futures contracts gains.

Answer rating: 100% (QA)

Do you go long or short with the contracts The answer is short The reason is that if interest rates go up then the price of the bond will go down So i... View the full answer