Suppose you want to hedge a $230 million bond portfolio with a duration of 5.3 y

Question

Suppose you want to hedge a $230 million bond portfolio with a duration of 5.3 years using 10-year Treasury note futures with a duration of 6.8 years, a futures price of 108, and 9 months to expiration. The multiplier on Treasury note futures is $100,000. How many contracts do you buy or sell? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Suppose you want to hedge a $230 million bond portfolio with a duration of 5.3 years using 10-year Treasury note futures with a duration of 6.8 years, a futures price of 108, and 9 months to expiration. The multiplier on Treasury note futures is $100,000. How many contracts do you buy or sell? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

Explanation / Answer

Contracts to sell = portfolio value*portfolio duation/(notes duration*futures price*multiplier)

=230000000*5.3/(6.8*108*100000)

=17 contracts

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