INVESTMENTS (LOOSELEAF) W/CONNECT
11th Edition
ISBN: 9781260465945
Author: Bodie
Publisher: MCG
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Chapter 23, Problem 15PS
Summary Introduction
To calculate: The Number of selling future contracts with the help of given information.
Introduction: Future contracts are the agreement between buyer and seller to exchange their commodities in future time at a specific price of the item. Short term bonds are more unpredictable than the long term.
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Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 12 basis points for every 18.9-basis-point move in the yield on 5-year bonds. You hold a $4.5 million portfolio of 5-year maturity bonds with modified duration 4 years and desire to hedge your interest rate exposure with T-bond futures, which currently have modified duration 9 years and sell at F0 = $75. How many futures contracts should you sell? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)
Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 10 basis points for every 15-basis-point move in the yield on 5-year bonds. You hold a $1 million portfolio of 5-year maturity bonds with modified duration 4 years and desire to hedge your interest rate exposure with T-bond futures, which currently have modified duration 9 years and sell at F0 = $95. How many futures contracts should you sell?
Taussig Corp.'s bonds currently sell for P1,150. They have a 6.75% annual coupon rate and a 15-year maturity, but they can be called in 6 years at P1,067.50. Assume that no costs other than the call premium would be incurred to call and refund the bonds, and also assume that the yield curve is horizontal, with rates expected to remain at current levels on into the future. Under these conditions, what rate of return should an investor expect to earn if he or she purchases these bonds, the YTC or the YTM?
Chapter 23 Solutions
INVESTMENTS (LOOSELEAF) W/CONNECT
Ch. 23 - Prob. 1PSCh. 23 - Prob. 2PSCh. 23 - Prob. 3PSCh. 23 - Prob. 4PSCh. 23 - Prob. 5PSCh. 23 - Prob. 6PSCh. 23 - Prob. 7PSCh. 23 - Prob. 8PSCh. 23 - Prob. 9PSCh. 23 - Prob. 10PS
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