An investor wishes to hedge a bond with a par value of $250,000,000 with Treasury...
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Accounting
An investor wishes to hedge a bond with a par value of $250,000,000 with Treasury bond futures. Assume that 1) the conversion factor for the cheapest-to-deliver issue is 1.0176; 2) the price value of a basis point (PV01) of the cheapest-to-deliver issue at the settlement date is 0.0742; 3) the price value of a basis point (PV01) for the bond to be hedged is 0.06680.
a) What is the hedge ratio?
b) How many Treasury bond futures should be purchased/sold to hedge the bond?
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