A portfolio contains only one bond and nothing else. This bond, Bond Y, has a 4% annual coupon, matures in 5 years from
Posted: Tue Apr 26, 2022 10:53 am
A portfolio contains only one bond and nothing else. This bond,
Bond Y, has a 4% annual coupon, matures in 5 years from today, and
is currently yielding 3.87%. All rates are expressed on an
effective annual basis. A Treasury bond maturing in 4 years from
today, carrying an annual coupon of 1.91%, and currently trading at
par is available for duration-hedging purposes. The Bond Y
portfolio is currently unhedged with interest rates, but you would
like to use the Treasury bond to manage this risk. If the market
value of the unhedged portfolio is $1,137,165 on the LONG side,
what market value of the Treasury bond should be held on the SHORT
side to create a 124.71% duration-hedged portfolio? That is, you
would like 124.71% of the market value of the LONG side hedged.
(Assume that, in these calculations, duration hedging uses Macaulay
duration.)
Question 5 options:
$1,519,925
$1,562,145
$1,604,365
$1,646,585
$1,688,806
Bond Y, has a 4% annual coupon, matures in 5 years from today, and
is currently yielding 3.87%. All rates are expressed on an
effective annual basis. A Treasury bond maturing in 4 years from
today, carrying an annual coupon of 1.91%, and currently trading at
par is available for duration-hedging purposes. The Bond Y
portfolio is currently unhedged with interest rates, but you would
like to use the Treasury bond to manage this risk. If the market
value of the unhedged portfolio is $1,137,165 on the LONG side,
what market value of the Treasury bond should be held on the SHORT
side to create a 124.71% duration-hedged portfolio? That is, you
would like 124.71% of the market value of the LONG side hedged.
(Assume that, in these calculations, duration hedging uses Macaulay
duration.)
Question 5 options:
$1,519,925
$1,562,145
$1,604,365
$1,646,585
$1,688,806