Posted: February 23rd, 2017

Discuss two reasons for using futures rather than selling bonds to hedge a bond portfolio. No calculations required. b. Formulate Klein’s hedging strategy using only the futures contract shown. Calculate the number of futures contracts to implement the strategy. Show all calculations.

Excel only each problem must be on a separate sheet so problem 3 (a-e) I sheet , next sheet problem 4 & so on

Please see attachment for all problems

Chapter 21: Problems 3(a-e), 4(a-c), 6(a-c), 9(a-b), 10(a-c), and 11(a-c)

3. June Klein, CFA, manages a $100 million (market value) U.S. government bond portfolio for an institution. She anticipates a small parallel shift in the yield curve and wants to fully hedge the portfolio against any such change.

a. Discuss two reasons for using futures rather than selling bonds to hedge a bond portfolio. No calculations required.

b. Formulate Klein’s hedging strategy using only the futures contract shown. Calculate the number of futures contracts to implement the strategy. Show all calculations.

c. Determine how each of the following would change in value if interest rates increase by 10 basis points as anticipated. Show all calculations.

(1) The original portfolio

(2) The Treasury bond futures position

(3) The newly hedged portfolio