Financial Risk Manager Part 1
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An investment manager holds a 7-year US Treasury bond with a face value of USD 60 million. They intend to create a barbell portfolio that matches the cost and duration of the 7-year bond by combining 2-year and 15-year US Treasury bonds. The characteristics of the three US Treasury bonds are outlined in the table below:
| Maturity | Price | Duration |
|---|---|---|
| 2 years | 100.972 | 1.938 |
| 7 years | 106.443 | 6.272 |
| 15 years | 122.175 | 11.687 |
Determine the appropriate set of weights for the 2-year and 15-year bonds that the manager should use to construct the barbell portfolio.