Answered step by step
Verified Expert Solution
Question
1 Approved Answer
5. (6 points) A bank has $95 million of assets with duration of 10 years, and liabilities worth $86 million with duration of 2 years.
5. (6 points) A bank has $95 million of assets with duration of 10 years, and liabilities worth $86 million with duration of 2 years. Since the bank is concerned about preserving the value of its equity in event of an increase in interest rates, it is contemplating a macrohedge w contracts. Right now, there are plenty of T-bond futures in the market, with duration of 4 years, trading at 96-12 (i.e., $96,375). Assume that the spot and futures interest rates move together. the ith interest rate futures The duration gap (DGAP) of the bank is Workout To hedge the risk, the number of futures contract to enter is Workout: Is the hedging position to long or to short futures? Workout
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started