Yields on short-term bonds tend to be more volatile than yields on long-term bonds. Suppose that you have estimated that the yield on 20-year bonds changes by 10 basis points for every 21-basis-point move in the yield on 5-year bonds. You hold a $1.5 million portfolio of 5-year maturity bonds with modified duration 4 years and desire to hedge your interest rate exposure with T-bond futures, which currently have modified duration 9 years and sell at F0 = $70. How many futures contracts should you sell? (Do not round intermediate calculations. Round your final answer to the nearest whole number.)

The yield on momentary securities tends to be more eccentric than yields on long haul securities. In the event that it is assessed that the yield on 20-year securities changes by 10 premise focuses for each 15-premise point move in the yield on 5-year securities. One is holding a $1 million arrangement of 5-year development securities with changed length 4 years and ready to support his loan cost introduction with T-bond prospects. T-bond fates as of now have adjusted term 9 years and sell at $95 (F0).  

The quantity of prospects gets that he should sell can be determined as demonstrated as follows: according to the assumption the portfolio misfortune considering the given data would be:

P = Portfolio esteem =$1,000.000

D = Modified length =4 years

Ay =Bond portfolio yield =15 premise  

Misfortune on the Portfolio = P x Ay =$1,000,000 x 0.15%x 4 = $6,000  

The adjustment in the fates cost (per $100 standard worth) will be as determined underneath:

$95 x 0.0001x 9 = $0.0855

This is a difference in $85.50 on a $100,000 standard worth agreements. Along these lines you should sell: $6,000/$85.50= 70  

Hence, he ought to go short is 70 contracts.

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