A manager is holding a $1 million bond portfolio with a modified duration of 8 years. She would like to hedge the risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 10 years. How many dollars’ worth of T-bonds should she sell to minimize the variance of her position?

A manager is holding a $1 million bond portfolio with a modified duration of 8 years. She would like to hedge the risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 10 years. How many dollars’ worth of T-bonds should she sell to minimize the variance of her position?

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter6: Risk And Return

Section: Chapter Questions

Problem 5MC: Your client has decided that the risk of the bond portfolio is acceptable and wishes to leave it as...

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