Corporate Bank has $ 840 million of assets with a duration of 12 years and liabilities worth
Question:
a. What type of option should Corporate Bank use for the macrohedge?
b. How many options should be purchased?
c. What is the effect on the economic value of the equity if interest rates rise 50 basis points?
d. What is the dollar change in value of the option position if interest rates rise by 50 basis points?
e. What will be the cost of the hedge if each option has a premium of $ 0.875 per $ 100 of face value?
f. How much must interest rates move against the hedge for the increased value of the bank to offset the cost of the hedge?
g. How much must interest rates move in favor of the hedge, or against the balance sheet, before the payoff from the hedge will exactly cover the cost of the hedge?
Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest...
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Related Book For
Financial Markets and Institutions
ISBN: 978-0077861667
6th edition
Authors: Anthony Saunders, Marcia Cornett
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