Based on the price sensitivity hedge ratio approach, what is the optimal number of futures contracts to deploy, given the following information. The yield beta is 0.65, the present value of a basis point change for the underlying bond portfolio is $33,000, and the present value of a basis point change for the bond futures contract is $325. (Select the closest answer.)

Based on the price sensitivity hedge ratio approach, what is the optimal number of futures contracts to deploy, given the following information. The yield beta is 0.65, the present value of a basis point change for the underlying bond portfolio is $33,000, and the present value of a basis point change for the bond futures contract is $325. (Select the closest answer.)

a. long 100 futures contracts
b. long 55 futures contracts
c. short 66 futures contracts
d. short 22 futures contracts
e. short 11 futures contracts

Answer: C

You hold a stock portfolio worth $15 million with a beta of 1.05. You would like to lower the beta to 0.90 using S&P 500 futures, which have a price of 460.20 and a multiplier of 250. What transaction should you do? Round off to the nearest whole contract.

You hold a stock portfolio worth $15 million with a beta of 1.05. You would like to lower the beta to 0.90 using S&P 500 futures, which have a price of 460.20 and a multiplier of 250. What transaction should you do? Round off to the nearest whole contract.

a. sell 130 contracts
b. sell 9,778 contracts
c. sell 20 contracts
d. buy 50,000 contracts
e. sell 50,000 contracts

Answer: C

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.

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

Answer: A

The relationship between the spot yield and the yield implied by the futures price is called

The relationship between the spot yield and the yield implied by the futures price is called

a. the yield beta
b. the price sensitivity
c. the tail
d. the hedge ratio
e. none of the above

Answer: A