Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Assets Duration = 11 years $ 1,010 Liabilities Duration = 5 years Equity $ 940 70 A. What is the FI's duration gap? B. What
Assets Duration = 11 years $ 1,010 Liabilities Duration = 5 years Equity $ 940 70 A. What is the FI's duration gap? B. What is the impact on the FI's equity value if the relative change in interest rates is an increase of 1 percent? That is, A R/(1 +R) = 0.01 C. Suppose that the FI in part (c) macrohedges using Treasury bond futures that are currently priced at 95. What is the change in value per futures contract used to hedge if the relative change in all interest rates is an increase of 1 percent? That is, A R/(1+R) = 0.01. Assume that the deliverable Treasury bond has a duration of ten years. The bonds underlying the futures contract have a par value of $100,000 D. If the FI wants to macrohedge, how many Treasury bond futures contracts does it need? ......... Years A Duration gap | B Impact on the FI's equity value | C | Change in value per futures contract | d Number of Treasury bond Assets Duration = 11 years $ 1,010 Liabilities Duration = 5 years Equity $ 940 70 A. What is the FI's duration gap? B. What is the impact on the FI's equity value if the relative change in interest rates is an increase of 1 percent? That is, A R/(1 +R) = 0.01 C. Suppose that the FI in part (c) macrohedges using Treasury bond futures that are currently priced at 95. What is the change in value per futures contract used to hedge if the relative change in all interest rates is an increase of 1 percent? That is, A R/(1+R) = 0.01. Assume that the deliverable Treasury bond has a duration of ten years. The bonds underlying the futures contract have a par value of $100,000 D. If the FI wants to macrohedge, how many Treasury bond futures contracts does it need? ......... Years A Duration gap | B Impact on the FI's equity value | C | Change in value per futures contract | d Number of Treasury bond
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