Delta y = 1%

7. Consider the following balance sheet: Assets: 950 (10 years = modified duration) Liabilities: 860 in borrowed funds (2 years = modified duration) 90 in Equity How would you hedge this balance sheet against a 1% increase in interest rates using an interest rate swap with a fixed rate payment with a modified duration of 6 years and a floating rate payment with a modified duration of 2 years? a) Receive fixed and pay floating, NP = 1,864 million b) Receive floating and pay fixed, NP =1,864 million c) Receive floating and pay fixed, NP =1,945 million d) Receive fixed and pay floating, NP =1,945 million e) Receive fixed and pay floating, NP =1,746 million 7. Consider the following balance sheet: Assets: 950 (10 years = modified duration) Liabilities: 860 in borrowed funds (2 years = modified duration) 90 in Equity How would you hedge this balance sheet against a 1% increase in interest rates using an interest rate swap with a fixed rate payment with a modified duration of 6 years and a floating rate payment with a modified duration of 2 years? a) Receive fixed and pay floating, NP = 1,864 million b) Receive floating and pay fixed, NP =1,864 million c) Receive floating and pay fixed, NP =1,945 million d) Receive fixed and pay floating, NP =1,945 million e) Receive fixed and pay floating, NP =1,746 million