Mr. Toriop manages a bond portfolio valued at $27,492,045. The bonds in this portfolio have a face value of $25 million. The portfolio has a yield of 8.35 percent and a duration of 7.67. Mr. Toriop is worried that interest rates will rise within the next year. He would like to lower the duration of your bond portfolio to 5 years. He finds a one-year bond futures contract and thinks that it would be an appropriate hedge for your portfolio. This futures contract is priced at 109 17/32, has an implied yield of 8 percent, and has an implied duration of 7.9 years. The futures contract size is $100,000.
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