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A $300 million bond portfolio currently has a modified duration of 12.5. The portfolio manager would like to reduce the modified duration of the bond portfolio to 8, by using a futures contract priced at $105,250. The futures contract has an implied modified duration of 9.25. The portfolio manager has estimated that the yield on the bond portfolio is about 8% more volatile than the implied yield on the futures contract. Should he enter a long or a short futures position? Calculate the number of contracts needed to change the duration of the bond portfolio.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93056585

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