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Assume the three hedging securities: a 2-year, 5-year and 10-year bond. The maturities correspond to the three key rates at 2, 5 and 10 years. The key rate '01 (KRO1) for the bonds are given in the table below, and they are reported per $100 face value. The KRO1s of the underlying portfolio are given below (but they are reported for the face amount).
Key Rate 01s (per $100 Face)
| Hedging Securities | 2-year | 5-year | 10-year |
|---|---|---|---|
| 2-year bond | 0.010 | ||
| 5-year bond | 0.010 | 0.040 | |
| 10-year bond | 0.010 | 0.050 | 0.100 |
Key Rate 01s ($)
| Underlying Portfolio | 2-year | 5-year | 10-year |
|---|---|---|---|
| 20.0 | 60.0 | 100.0 |
What is the face value of the two year (2-year) hedging bond that is required?