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Integrated Mini Case HEDGING INTEREST RATE RISK WITH FUTURES CONTRACTS Use the following December 31, 2018, market value balance sheet for Bank One to answer
Integrated Mini Case HEDGING INTEREST RATE RISK WITH FUTURES CONTRACTS Use the following December 31, 2018, market value balance sheet for Bank One to answer the question below. The bank's manager thinks rates will increase by 3. Calculate the change in the market value of 0.50 percent in the next three months. To hedge equity for Bank One if rates increase such that this interest rate risk, the manager will use June R/(1+R)=0.0075. T-bond futures contracts. The T-bonds underlying 4. Calculate the correct number of futures con the futures contracts have a maturity =15 years. tracts needed to hedge the bank's interest rate a duration =14.25 years, and a price =10810 or risk (do not round to the nearest whole con\$108,312.50. Assume that interest rate changes in tract). Make sure you specify whether you such that br=08s5. should enter the hedge with a short or long 1. Calculate the leverage-adjusted duration gap 5. Calculate the change in the banks market yalue (DGAP) for Bank One. of equity and the change in the value of the 2 Using the DGAP model, if interest rates on Thond furures position for the bank if interest assets and liabilities increase such that RN rates increase by 0.55 percent from the current (1+RN)=RN/(1+RL)=0.0075, calculate the rate of 6 percent on the T bond and increase change in the value of assets and liabilities and the 0.65 percent from the current rate of 8 percent new value of the assets and liabilities for Bank One on the balance sheet assers and liabilities
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