Answer:
A. 823.74
B.$4,614,028.00 gain
C.-$4,629,629.63
D.$2,678,000
Explanation:
a.
Np= Bond Portfolio Value/δ*B*D
=$100,000,000/-0.625*-10.1*$96,157
=823.74
Approximately 824 Contract
b.
A $100,000 20-year, eight percent bond selling at $96,157 implies a yield of 8.4 percent.
∆P = ∆p * Np= 824 * -0.625 * -10.1/1.084 * $96,157 * 0.01 = $4,614,028.00 gain
c.
∆PVBond= -5 * .01/1.08 * $100,000,000 = -$4,629,629.63
d.
The price quote of $3.25 is per $100 of face value. Hence the cost of one put contract will be $3,250 while the cost of the hedge
= 824 contracts * $3,250 per contract
= $2,678,000.
