Determine the Optimal Hedge Ratio for Treasury Bonds Worth $1,000,000

question 25

Multiple Choice

Determine the optimal hedge ratio for Treasury bonds worth $1,000,000 with a modified duration of 12.45 if the futures contract has a price of $90,000 and a modified duration of 8.5 years.

• A)16.27
• B)15.93
• C)7.42
• D)11.11
• E)none of the above

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Definitions:

Average Variable Cost

Average variable cost is the total variable cost divided by the quantity of output, showing the cost of producing one more unit of a good.

Marginal Product

The additional output produced by using one more unit of a given input, holding all other inputs constant.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one additional unit of a good changes as the production volume varies.

Short-Run Marginal Cost

The change in total cost associated with producing one additional unit of output, considering some inputs are fixed.