Schweser Practice Exam Vol 1 Exam 3 Q52

[Que Sera]

I might just be really stupid but can someone please explain to me how they got 9.90 duration from the passage?
Im losing my mind here trying to work it out, im sure its something obvious which im missing…
Thanks!

 

[Galli]

post the details and i’m sure someone could answer

 

[Que Sera]

Apologies..
Smiler will issue $25,000,000.00 of 20 year par debt in 9 months. NG is concerned that interest rates could fluctuate and wants to hedge the IR risk by using the Treasury bond futures contract.
Contract Price: 75,287, duration 7.11.
Ng has also run a regression of yields on 20 year corporate bonds that are comparable to this new issue versus Treasury bonds and finds a stable regression of 1.05
Determine the strategy in treasury bond futures contacts tha Ng should take to hedge the interest rate risk of the bond Smiler will issue:
a) Long 485 Contracts
b) Short 461 Contracts
c) Short 485 Contracts

 

[cpk123]

is not in this bit of the passage that you have above.

 

[Galli]

https://www.kaplanlearn.com/education/errata/node/1248976?parentNodeId=3...
“Page 184 last paragraph first sentence add “9.9 duration” after “20- year”.
Good ole Errata.

 

[Que Sera]

wow and i didnt think to look at the errata to begin with! Ha!
But thanks Galli that makes a lot more sense now

 

[megavolt1123]

You guys are the best. Spent an hour trying to rack my brain on the 9.9