Consider the following balance sheet (in millions) for an FI:

Assets Liabilities Duration = 12 years $960 Duration = 6 years $880 Equity 80

a. What is the FIs duration gap? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16))

Duration gap years

b. What is the FIs interest rate risk exposure?

The FI would be hurt by (Click to select) increasing decreasing interest rates.

c. How can the FI use futures and forward contracts to create a macrohedge?

The FI could hedge its interest rate risk by (Click to select) selling buying futures or forward contracts.

d.

What is the impact on the FIs equity value if the relative change in interest rates is an increase of 1 percent? That is, [formula19.mml] R/(1 + R) = 0.01. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars not in millions.)

Impact on the FIs equity value $

e.

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, [formula19.mml] R/(1 + R) = 0.01. Assume that the deliverable Treasury bond has a duration of eleven years. The bonds underlying the futures contract have a par value of $100,000. (Negative amount should be indicated by a minus sign. Enter your answer in dollars not in millions.)

Change in value per futures contract $

f.

If the FI wants to macrohedge, how many Treasury bond futures contracts does it need? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round down your answer to the nearest whole number.)

Number of Treasury bond