A Bond Portfolio Manager Expects a Cash Outflow of $35,000,000

question 7

Multiple Choice

A bond portfolio manager expects a cash outflow of $35,000,000. 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) 333 contracts short
• B) 333 contracts long
• C) 348 contracts short
• D) 348 contracts long
• E) 300 contracts long

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Definitions:

Freudian Theory

A comprehensive theory of human psychology and behavior developed by Sigmund Freud that emphasizes the influence of the unconscious mind, childhood experiences, and psychosexual development.

Life Span

Refers to the maximum duration of life of a species or the length of an individual’s life.

Libido

A term used in psychoanalysis that refers to the sexual drive or desire.

Jung

Carl Jung, a Swiss psychiatrist and psychoanalyst who founded analytical psychology, known for concepts such as the collective unconscious, archetypes, and psychological types.