What is the number of futures contracts

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An investor holds a bond portfolio with principal value $10,000,000 whose price and modified duration are respectively 112 and 9.21. He wishes to be hedged against a rise in interest rates by selling futures contracts written on a bond. Suppose the price of the cheapest-to-deliver issue is 105.2. The nominal amount of the futures contract is $100,000. The conversion factor for the cheapest-to-deliver is equal to 0.981. The cheapest-to-deliver has a modified duration equal to 8. Additionally, assume that if the yield of portfolio changes by 25 basis points, the yield of cheapest-to-deliver issue changes by 70 basis points. What is the number of futures contracts that the investor has to sell to hedge against a rise in interest rates?

Reference no: EM132585670

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