17) C
Bond | Cash Price | Conversion Factor | CP*CF | CP-CP*CF | ||||
1 | 125.05 | 1.2131 | 151.70 | -26.65 | ||||
2 | 142.15 | 1.3792 | 196.05 | -53.90 | ||||
3 | 115.31 | 1.1149 | 128.56 | -13.25 | ||||
4 | 144.02 | 1.4026 | 202.00 | -57.98 | Bond C is cheapest to deliver |
18) D
Year | C | NPV | nPVC | FV | 1000 | ||
1 | 120 | 108.11 | 108.1081 | YTM | 11% | ||
2 | 120 | 97.39 | 194.7894 | CP | 12% | ||
3 | 120 | 87.74 | 263.2289 | ||||
4 | 120 | 79.05 | 316.1909 | ||||
5 | 120 | 71.21 | 356.0708 | ||||
5 | 1000 | 593.45 | 2967.257 | ||||
1036.96 | 4205.645 | 4.1 |
19) E
The treasurer should short Treasury bond futures contract. If bond prices go down, this futures position will provide offsetting gains. The number of contracts that should be shorted is
(10,000,000 x 7.1) / (91375 x 8.8) = 88.30
Rounding to the nearest whole number 88 contracts should be shorted.
20) D
17. Suppose that the T-bond futures price is 101-12. Which of the following four bonds is cheapest to deliver? Bond...
Suppose that the Treasury bond futures price is 101-12. Which of the following four bonds is cheapest to deliver? Please answer with just a number (1, 2, 3, or 4) Bond Price Conversion Factor 1 127-05 1.2131 2 132-15 1.2992 3 118-31 1.1149 4 148-02 1.4026
A bond fund manager is concerned about interest rate volatility over the next 3 months. The value of the bond portfolio is $9M and the duration of the portfolio is 6.2 years. To hedge interest rate volatility, the fund manager uses Treasury bond futures. The quoted price for the December Treasury bond futures contract is 93-05. The cheapest to deliver Treasury bond has a duration of 7.9 years. How many contracts should the fund manager short? (Enter as positive number,...
In August, a fund manager has $10 million invested in a long portfolio of government bonds with a duration of 6.80 years and wants to hedge against interest rate risk between August and December. The fund manager may use December T-bond futures. The futures price is 93-02 and the duration of the cheapest to deliver bond is 9.2 years. Suggest a risk management strategy to the fund manager and show your calculation.
In August, a fund manager has $10 million...
The most recent settlement T-bond futures price is 110. Which of the following four bonds is cheapest to deliver (use the gross basis)? Quoted bond price = 123; conversion factor = 1.1000. Quoted bond price = 155; conversion factor = 1.4000. Quoted bond price = 145; conversion factor = 1.3000. Quoted bond price = 137; conversion factor = 1.2200.
You manage a bond portfolio with a current value of $150,000,000 & a duration of 7.32. You need to hedge the interest rate risk of this portfolio for some reason. Today's date is Monday 12/10/2018, so the settlement price for a treasury bond is the 11th. You decide to use the 10 year t-note futures to hedge. The cheapest to deliver bond is the 3 percent coupon bond with maturity date of 09/30/2025 which is currently selling for a yield...
1) You are the manager of a bond portfolio of $10 million face value of bonds worth $9,448,546. The portfolio has a duration of 8.33. You plan to liquidate the portfolio in six months and are concerned about an increase in interest rates that would produce a loss on the portfolio. You would like to convert your portfolio to synthetic cash. A T-bond futures contract with the appropriate expiration is priced at 72 3/32 with a face value of $100,000,...
20-2 Assume a portfolio manager holds $1 million of 5.2 percent Treasury bonds due 2010-2015 The current market price is 76-2, for a yield of 6.95 percent. The manager fears a rise in interest rates in the next three months and wishes to protect this position against such a rise by hedging in futures,
a. Ignoring weighted hedges, what should the manager do?
b. Assume T-bond futures contracts are available at 68, and the price 3 months later is 59-12....
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