Question on december 15th 2009 a bond portfolio manager, Ask an Expert

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Question: On December 15th, 2009, a bond portfolio manager holds $1 million of T-bonds that pay a coupon rate of 7% semiannually and mature in 23 years. The bond in currently priced at 102 and has a modified duration of 7. The manager would like to sell the bonds on January 31st. The current March T-Bond futures is at 98. The characteristics of the deliverable bond imply a modified duration of 9.

How many futures contracts do you buy or sell to hedge your position?

If the bonds are sold on Jan 31st at a price of 95 and the futures price is on that day is 93, how well did the hedge work?

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