An FI Portfolio Manager Holds 10-Year $1 Million Face Value

Multiple Choice

An FI portfolio manager holds 10-year $1 million face value bonds.At time 0, these bonds are valued at $95 per $100 of face value and the manager expects interest rates to rise over the next three months.What should the manager do?

A) The FI portfolio manager should leave the position untouched as changes in the interest rate have no impact on bond prices.
B) The FI portfolio manager should leave the position untouched as an increase in interest rates will lead to higher bond prices.
C) The FI portfolio manager should hedge the position by selling a three months forward contract with a face value of $1 million.
D) The FI portfolio manager should hedge the position by buying a three months forward contract with a face value of $1 million.