Bank of Crooks and Criminals:

• Has $300 million in Assets and $240 million in liabilities
• Duration of Assets 5.5, and duration of liabilities 7.5
• Current Interest rates of assets are 9.0%
• Interest rates for both assets and liabilities are likely to increase by 50 basis points
• Futures Contract on T-Bond: Price: 96-08, Face Value $100,000, duration of the T-Bond 9.0

1. What is the Duration Gap of Bank for Bank of Crooks and Criminals?

1. To completely hedge their equity, how many futures contracts is necessary?

1. Should the bank BUY or SELL the futures contracts for macro-hedging?

1. Show that the hedging you recommended really works.
   1. What was the change in Equity position of the bank?

1. 1. What was the change in the value of the futures contract?

1. Now assume: Interest rates for assets is at 10.0% and likely to increase by 100 basis points. Interest rate for liabilities is at 7.5% and may increases by 25 basis points. What would be the impact on the equity value of the bank?
   1. Change in Asset Value:

1. 1. Change in Liability value

1. 1. Change in Equity Value: