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BONUS: (20 points) You are hedging your bank's securities portfolio using 10-year T-Bond fu- tures. Each contract is valued at $1M and requires a 5%
BONUS: (20 points) You are hedging your bank's securities portfolio using 10-year T-Bond fu- tures. Each contract is valued at $1M and requires a 5% initial margin and has a 3% maintenance margin. In order to adequately hedge against interest rate increases hurting the portfolio value you must get into 100 contracts (or $100M worth of futures) where you agree to sell the T-Bonds for $1M. A. What equity amount would you have to put up initially to get into the contracts? B. If the futures are marked-to-market daily and the contract values go to $900,000 what would be your equity value? Would you have a margin call? If so, for how much? C. If the futures are marked-to-market daily and the contract values go to $1,100,000 what would be your equity value? Would you have a margin call? If so, for how much? BONUS: (20 points) You are hedging your bank's securities portfolio using 10-year T-Bond fu- tures. Each contract is valued at $1M and requires a 5% initial margin and has a 3% maintenance margin. In order to adequately hedge against interest rate increases hurting the portfolio value you must get into 100 contracts (or $100M worth of futures) where you agree to sell the T-Bonds for $1M. A. What equity amount would you have to put up initially to get into the contracts? B. If the futures are marked-to-market daily and the contract values go to $900,000 what would be your equity value? Would you have a margin call? If so, for how much? C. If the futures are marked-to-market daily and the contract values go to $1,100,000 what would be your equity value? Would you have a margin call? If so, for how much
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