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  3. (b) an investor holds 100,000 units of a bond whos

(b) An investor holds 100,000 units of a bond whos following table. He wishes to...

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Finance

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(b) An investor holds 100,000 units of a bond whos following table. He wishes to be hedged against a rise in interest rates. e features are summarized in the Maturity Coupon rateYTM 18 years 19.5% DurationPrice 9.5055 8% 114.181 Characteristics of the hedging instrument. Which in this case a bond are as follows: Maturity Coupon rate YTM Duration 9.8703 Price 119.792 20 years 10% 8% Coupon frequency and compounding frequency are assumed to be semi-annual. The YTM curve is flat at an 8% level. (i) What is the quantity (Q) of the hedging instrument that the investor has to (ii) Suppose that the YTM increases instantaneously by 0.1%, what happens if sell? the bond portfolio 1) has not been hedged? 2) has been hedged

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