A Bond Portfolio Manager Expects a Cash Inflow of $12,000,000

question 56

Multiple Choice

A bond portfolio manager expects a cash inflow of $12,000,000. The manager plans to hedge potential risk with a Treasury futures contract with a value of $105,215. The conversion factor between the CTD and the bond specified in the Treasury futures contract is 0.85. The duration of bond portfolio is eight years, and the duration of the CTD bond is 6.5 years. Indicate the number of contracts required and whether the position to be taken is short or long.

• A) 114 contracts short
• B) 114 contracts long
• C) 119 contracts short
• D) 119 contracts long
• E) 100 contracts long

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Definitions:

Glycolysis

The first step in cellular respiration, a pathway that converts glucose into pyruvate, generating ATP and NADH.

Citric Acid Cycle

A series of chemical reactions used by all aerobic organisms to generate energy through the oxidation of acetate derived from carbohydrates, fats, and proteins.

Substrate-level Phosphorylation

A metabolic process where ATP is produced by the direct transfer of a phosphate group to ADP from another phosphorylated compound.

Oxidative Phosphorylation

A metabolic pathway that uses energy released by the oxidation of nutrients to produce ATP, it takes place in the mitochondria.