A manager is holding a 24 million bond portfolio with a modi

A manager is holding a $2.4 million bond portfolio with a modified duration of 6 years. She would like to hedge the risk of the portfolio by short-selling Treasury bonds. The modified duration of T-bonds is 8 years. How many dollars\' worth of T-bonds should she sell to minimize the risk of her position? (Enter your answer in dollars not in millions.)

Worth of T-bonds            $

Solution

dollars\' worth of T-bonds should she sell to minimize the risk = 2,400,000*6/8

dollars\' worth of T-bonds should she sell to minimize the risk = 1,800,000