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(CLO4) 20 marks AFI manager receives information from an economic forecasting unit that interest rates are expected to rise from 10 percent to 11 percent

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(CLO4) 20 marks AFI manager receives information from an economic forecasting unit that interest rates are expected to rise from 10 percent to 11 percent over the next year. The Fl manager wants to calculate the potential loss to the Fi's net worth (E) if the forecast of rising rates proves to be true. Suppose: Duration of assets DA-4 years. Duration of liabilities D-3 years Assats A-$100 Labies L-5 80 million 1-Calculate the change in FI Net Worth as interest rates rise? 10 marks] 2-Proposa detailed solution of how the FI manager can take a fully hedging position? 16 marka Suppose the current futures price quote is $100 per $100 of face value for the benchmark 20-year, 8 percent coupon bond underlying the nearby futures contract, the minimum contract size is $100,000, and the duration of the deliverabils bond is 8 years >Compute the appropriate number of futures contracts to be traded using the formula below 10 marks] N -(D, -KD, )A (D, XP,) CLO4] 20 marks AFI manager receives information from an economic forecasting unit that interest rates are expected to rise from 10 percent to 11 percent over the next year. The Fl manager wants to calculate the potential loss to the Fre net worth (E) if the forecast of rising rates proves to be true. Suppose Duration of assets DA-4 years. Duration of liabilities D-3 years Assets A-$100 milion Lisbiles L-$ 80 million 1- Calculate the change in FI Net Worth as interest rates rise? 10 marks) 2-Propose a detailed solution of how the FI manager can take a fully hedging position? 10 marks] Suppose the current futures price quote is $100 per $100 of face value for the benchmark 20-year, 8 percent coupon bond underlying the nearby futures contract, the minimum contract size is $100,000, and the dation of the deliverable bond is years. > Compute the appropriate number of tutures contracts to traded using the formula below marks) N, --(D, -KD, )A/(D, XP,)

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