I have a question around fixed income and a calculation. Say there is $100,000,000 in cash and the 10-Year Treasury duration is 7.5 years. How many 10-Year Treasury securities would you need to purchase to get to a duration of 4?
Any help is appreciated!
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What is it about this that you are struggling with? Make sure you are thinking about this as a portfolio - $100mm total, invested in two assets (cash and treasuries), with durations of 0 (cash) and 7.5 (treasuries) - where the target, when you weight it in proportion, to have duration be 4.
That help?
My initial thought is to take $100mm X 4 target duration / 7.5 10 treasury duration which would give me $53m in 10 year treasuries.
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