A
To explain: The sales of a large illliquidity bond which is in a large position.
Introduction: Risks are the unenviable which occurs due to the market ups and downs. To hedge risk by using financial futures some actions are performed by the
B
To explain: How the manager will sell the bond to gain until the next year.
Introduction: To evade risk by using financial futures some proceedings are performed by the portfolio manager. The Manager desires to put on the market the bonds but at dissimilar gain.
C
To explain: You want to purchase the bonds at quite attractive prices.
Introduction: Bonds are future investment of the money with a specific return value. You are expecting a yearly plus and want to invest that money on corporative bonds but the prices are varying.
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Check out a sample textbook solution- 1) How might a portfolio manager use financial futures to hedge risk in each of the following circumstances:a. You own a large position in a relatively illiquid bond that you want to sell.b. You have a large gain on one of your Treasuries and want to sell it, but you would like to defer the gain until the next tax year.c. You will receive your annual bonus next month that you hope to invest in long-term corporate bonds. You believe that bonds today are selling at quite attractive yields, and you are concerned that bond prices will rise over the next few weeks. ------------------------------------------------------------------------- 2) The S&P portfolio pays a dividend yield of 1% annually. Its current value is 1,300. The T-bill rate is 4%. Suppose the S&P futures price for delivery in 1 year is 1,330. I know that the value of future contract is $1,339, which is priced at $1,330, the contract is under priced by $9. Because, Value of future contract = Current Value x (1 + Risk…arrow_forwardAfter recently receiving a bonus, you have decided to add some bonds to your investment portfolio. You have narrowed your choice down to the following bonds (assume semiannual payments): Which bond would you rather own if you expect market rates to fall by 2% across the maturity spectrum? What if rates will rise by 2%? Why?arrow_forwardYou believe that stocks are overvalued so you elect to add bonds to your retirement plan to reduce future potential downside price risk. With cash you've received from the sale of equities, you target two bonds for purchase. What is the fair market value for each of these bonds if the YTM for both is 6.75%? First bond: What is the price of an 8-year 4.95% coupon bond with $1,000 face value paying coupons semiannually? $944.28 $908.15 $890.12 $1,117.72 $875.36arrow_forward
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