Question

A portfolio is worth $902,654 and has a duration of 5.77 years. The futures price for a June Treasury note futures contract is 115 and each contract is for the delivery of bonds with a face value of 100,000. On the delivery date the duration of the cheapest to deliver bond is 4.36 years. To hedge the interest rate risk, how many June T note futures do you have to enter short positions on

Answer 1

10.39

Step-by-step explanation:

How many June T note futures do you have to enter short positions on?

The June T note futures we have to enter short positions on is calculated as:

= Portfolio duration*Portfolio value/(Futures price*Face value/100)*1/Duration of cheapest to deliver bond

= 5.77*$902,654 / (115*1000) * 1/4.36

= 5208313.58/115000*0.2293577981651376

= 10.38754204228161

= 10.39