Question
A bank has an asset value of $542.8 million and a liability value of $437.8 million. The durations of the assets and liabilities are 5.63
A bank has an asset value of $542.8 million and a liability value of $437.8 million. The durations of the assets and liabilities are 5.63 and 2.21 respectively. The bank would like to adjust the asset duration so that the change in asset and liability values will be the same when interest rates change. The current interest rates on the assets and liabilities are 4% and 1.5% respectively.
A.Calculate the target duration of the assets.
B.How many contracts of the following Treasury bond futures does the bank need to buy or sell to achieve its goal?
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