23. A bank issues a $100,000 fixed-rate 30-year mort- gage with a nominal annual rate of 4.5%....

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23. A bank issues a $100,000 fixed-rate 30-year mort- gage with a nominal annual rate of 4.5%. If the required rate drops to 4.0% immediately after the mortgage is issued, what is the impact on the value of the mortgage? Assume the bank hedged the posi- tion with a short position in two 10-year T-bond futures. The original price was 64 12/32 and expired at 67 16/32 on a $100,000 face value con- tract. What was the gain on the futures? What is the total impact on the bank?

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Financial Markets and Institutions

ISBN: 978-0321280299

5th edition

Authors: Frederic S. Mishkin, Stanley G. Eakins

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