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Suppose You Are Managing a Bond Portfolio with a Current

Question 8

Multiple Choice

Suppose you are managing a bond portfolio with a current market value of $4.6 million. The bonds in this portfolio are priced at an average price of 98% of par and the duration of the portfolio is 12.62 years. If the cheapest to deliver bond for a Treasury Bond futures contract has a duration of 13.22 years, is priced at 97.5% of par, and has a conversion factor of 0.8315, what is the hedge ratio for using this Treasury Bond futures contract?


A) 1.0773
B) 0.9373
C) 0.8664
D) 0.7978

Correct Answer:

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