Bond A

YTM = 6%
C = 9%
N = 12 years semi

of bonds = 319

Bond B

YTM = 8%
C = 10%
N = 8 years semi

of bonds = 537

Calculate the price and value of each bond and the portfolio
Calculate each bond’s duration and the weighted average duration of the portfolio
If the available futures is price 98, duration 5, and you desire a net short duration of negative 2, calculate the # of contracts needed.
Simulate a 150-bps increase in IR.
Prove your answer: Impact of bond portfolio + impact of futures contract must equal the simulation (desired) portfolio

Sample Solution