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Financial Bank has US$850 million of assets with a duration of 15 years and liabilities worth US$720 million with a duration of 17 years. Assets

Financial Bank has US$850 million of assets with a duration of 15 years and liabilities worth US$720 million with a duration of 17 years. Assets and liabilities are yielding 7.56 percent. Both the call and the put have Deltas of 0.4 and -0.4 respectively. A bond 100,000 T-bond is selling for $104.53125 with a duration of 8.17 years and yield to maturity of 7.56%. The bank is concerned about preserving the value of its equity in the event of an increase in interest rates.

This bank should ________________to hedge out risk.

  • A. sell 2,342 Puts

  • B. buy 1,475 puts

  • C. sell 23,428 calls

  • D. buy 14,754 calls

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