Problem

35. We are given a portfolio of bonds with value P = 100 and duration Dp = 1. There are tw...

35. We are given a portfolio of bonds with value P = 100 and duration Dp = 1. There are two securities available for hedging this portfolio, the first with a price of F1 = 95 and duration DF1 = 0.8 and the second with a price of F2 = 92 and duration DF2 = 1.2. Suggest a duration-based hedging strategy for portfolio P. State clearly the assumptions for your choice.

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Solutions For Problems in Chapter 6