Let assume that the average duration of the loans in a firm is 9 years. The average duration of its deposits is 3 years with k=L/A = 0.90 and total asset=$250 million. What is the gain or loss on the futures position (that hedges against the risk of the rise in interest rate) using T-Bonds (Duration = 9 years, $95 per $100 face value, minimum contract size = $100,000) if the shock to interest rates is 1 percent (decrease) while the current interest rate is 9%?

a.

Loss $11,909,090.77

b.

Gain $14,449,541.28

c.

Loss $12,600,000.19

d.

Gain $11,909,090.77

e.

Loss $14,449,541.28