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a manager is holding a $4.4 million bond portfolio with a modified duration of ten years. she would like to hedge the risk of the portfolio by short-selling treasury bonds. the modified duration of t-bonds is 11 years. how many dollars' worth of t-bonds should she sell to minimize the risk of her position? (

Respuesta :

PriyaMM

The first calculation entails deducting the cost of the T-bill from 100 and dividing the resulting sum by the cost.

How do you calculate the price of a Treasury bond?

  • "Interest" is the sum you pay between the face value and the discounted price.
  • Use this formula to get the purchase price at a specific discount rate: Price is equal to Face Value (1 – (Discount Rate x Time)/360).
  • The yield on the T-bill for the maturity period is shown by this number.
  • To convert this value to a percentage, multiply it by 100.
  • For Example :

Duration of bond portfolio (Dp) = 10

Value of bond portfolio (Vp) = 4,000,000

Duration of bonds (Df) = 11

T-bonds to be sold = Dp × Vp / Df

T-bonds to be sold = 10 × 4,000,000 / 11

T-bonds to be sold = $3,636,363.

To Learn more About T-Bill Refer to:

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