Determine the outcome of the hedge

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On July 1, a portfolio manager holds $1 million face value of Treasury bonds, the 11 l/4s maturing in about 29 years. The price is 107 14/32. The bond will need to be sold on August 30. The manager is concerned about rising interest rates and believes that a hedge would be appropriate. The September T-bond futures price is 77 15/32. The price sensitivity hedge ratio suggests that the firm should use 13 contracts, 

a. What transaction should the firm make on July 1?

b. On August 30, the bond was selling for 101 12/32 and the futures price was 77 5/32. Determine the outcome of the hedge?

Reference no: EM131914218

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