Principles of Finance-FI

A FI holds $10 million of a 15 year priced at 1040 and yields 7%. The FI plans to sell them in 2 months. The bond’s duration is 9.4 years.

The FI’s analyst is predicting the Fed will raise interest rates which will push the YTM on these bonds to 8%. The analyst’s opinion is not held by most other analysts.

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If the analyst is correct, what happens to the value of the bonds?

 

If the FI is able to hedge the position by using a two month forward contract priced at 1040, what would they do? If rates rise, what is the impact on the FI?