PassMaster question ID: L3-00573 (Third question in PM for the study session) In the solution to the question ,how did they get the $50,895,000 as the value of the portfolio before adding the gain?
wanna post the question?
Sure. A portfolio manager wishes to hedge $50,000,000 par value of a 10-year Treasury bond. Treasury Futures Bond Contract Price $101,790 $99,870 Modified 6.3 10.1* Duration Yield Beta 0.95 *Implied Modified Duration Three months later the value of the bond portfolio has risen by $2,625,000 and the futures contract value is 103,500. Compute the ex post hedged value of the portfolio. The contract multiplier is 1,000 and the number of contracts sold was 302. a. $52,625,000 b. $52,423,740 c. $52,423,740 d. $52,423,740
500 * 101,790 ?? b, c and d all look correct. 
They say the answer is B based on the following explanation: First, calculate the G/L on the futures contracts: G/L = -302 x |103,500-99,870| = -302 x 3,630 = -1,096,260 (loss) The ex post hedged value of the portfolio is the net of the G/L on the contracts and the ending value of the portfolio: 50,895,000 portfolio value 2,625,000 gain on portfolio ($ 1,096,260) loss on futures position $52,423,740 I got all the calculations except I don’t understand how they got the portfolio value of $50,895,000 above. Shouldn’t that be $50 mn?
Hey AT, It’s $50M par, so that’s 500 contracts x 101,790 = 50,895,000
I;m having trouble putting together “I got all the calculations except I don’t understand how they got the portfolio value of $50,895,000 above. Shouldn’t that be $50 mn?” AFTER "500 * 101,790 ?? " I can’t think of a more clear explanation…
Uhh… I didn’t see that … duh!