In late January 2011,Starlight Corporation is considering the sale of $50 million in 10-year debentures rated AAA.The issue will most likely be registered and sold some time in April.Therefore,Starlight Corporation desires to hedge the pending issue using Treasury bond futures contracts each representing $100,000.Explain how you would go about hedging the bond issue?
A) Sell 500 contracts
B) Buy 500 contracts
C) Sell 50 contracts
D) Buy 50 contracts
E) None of the above

Question

Quizplus · Accepted Answer

A short hedge is appropriate in this case.So,assuming a 1:1 hedge ratio,sell 500 $100,000 contracts.

In Late January 2011,Starlight Corporation Is Considering the Sale of $50