Abc investment is underwriting a 20-year zero-coupon, Ask an Expert

Management Studies

ABC Investment is underwriting a 20-year zero-coupon corporate bond issue with a face value of $5 million and a current market value of $2,676,776. The firm must hold the bonds for a few days before issuing them to the public, which exposes them to interest rate risk. ABC Investment wishes to hedge its position by using T-bond futures contracts. The current T-bond futures price is 90.80, and the T-bond contract will be settled using a coupon bond with a duration of 9.21 years. How many contracts should ABC Investment use to hedge its bond holdings against possible interest rate fluctuations over the next few days?

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Operation Management, Management Studies

Category:- Operation Management
Reference No.:- M91902648

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