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You Currently Hold a 7-Year fiXed Rate Bond Paying 1

Question 14

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You currently hold a 7-year fixed rate bond paying 1% annually. You would like to hedge against changes in the level and the slope of the yield curve and you plan to use a 2-year zero coupon bond and a 6-year zero coupon bond as hedging instruments. Use the following table to compute the adequate positions in the hedging instruments. You currently hold a 7-year fixed rate bond paying 1% annually. You would like to hedge against changes in the level and the slope of the yield curve and you plan to use a 2-year zero coupon bond and a 6-year zero coupon bond as hedging instruments. Use the following table to compute the adequate positions in the hedging instruments.

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The position in the short term...

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