Consider the following problem: A corporation plans to issue £1 million of 5-year bonds in 3 months. At current yields,

[answerhappygod]

Consider the following problem:
A corporation plans to issue £1 million of 5-year bonds in 3
months. At current yields, the bonds would have a modified duration
of 4 years. The corporation desires to hedge their interest rate
exposure with 20-year T-bond futures which have a modified duration
of 9 years. Each futures contract has a par value of £100,000 and
currently sold at £90,000. The corporation estimates that the yield
on 20-year bonds changes by 1 basis points for every
1.5-basis-point move in the yield on 5-year bonds
(i) How can the firm use this T-bond futures contract to hedge
the risk surrounding the yield at which it will be able to sell its
bonds? [20 marks]
(ii) Suppose that the yield on 20-year bonds actually changes by
1 basis points for every 1-basis-point move in the yield on 5-year
bonds. Does the corporation have to review their decision on
futures position?What should they do?