Please help to complete the assignment attached. The deadline is tomorrow.

Module 6 Critical Thinking: Financial Futures & Interest-Rate Options (100 points) Part A: Interest rate futures 1. Assume that Blue Sunday Bank has $200 million of assets with an average duration of 1.6 years and liabilities of $100 million with an average duration of 1.95 years. Compute the current duration gap of this bank. Assuming that U.S. Treasury bonds with a duration of 1.2 years are currently quoted in the market at 98-16, explain the position (buy or sell) in a futures contract (including the number of contracts) that the bank manager should take to eliminate interest rate risk. The following quotes will be used for the next two parts of this problem. 5-Year U.S. Treasury Bond Futures Contract Quotes from 6/27/2013 CBT $100,000; pts 32nd of 100% Prior Settle Open Jun 2013 121'240 a +0'102 121'137 121'220 121'250 b 121'210 92 4:15:23 PM CT 6/27/2013 Sep 2013 121'015 b +0'112 120'222 120'237 121'030 666,982 4:15:23 PM CT 6/27/2013 Month Last Change High Low 120'210 Volume Updated Source: CME Group. (2013, June 27). 5-year U.S. Treasury note futures. Retrieved from http://www.cmegroup.com/trading/interest-rates/us-treasury/5-year-us-treasurynote_quotes_globex.html#prodType=AME Eurodollar Future Contracts Quotes on 6/27/2013 CME - $100,000; pts of 100% Month Last Change Prior Settle Open High Low Volume Updated Jul 2013 99.7225 +0.0025 99.72 99.7225 99.7250 99.7200 9,880 4:06:35 PM CT 6/27/2013 Aug 2013 99.710 b +0.015 99.695 99.700 99.710 99.700 3,290 4:06:35 PM CT 6/27/2013 Sep 2013 99.685 b +0.020 99.665 99.675 99.690 99.670 98,488 4:06:35 PM CT 6/27/2013 Oct 2013 99.665 +0.020 99.645 99.660 99.665 99.655 a 21 4:06:35 PM CT 6/27/2013 Source: CME Group. (2013, June 27). Eurodollar futures. Retrieved from http://www.cmegroup.com/trading/interest-rates/stir/eurodollar_quotes_globex.html 2. Ignoring your work from Part 1, assume that the manager chooses to hedge the bank's risk by buying (long) twenty 5-year U.S. Treasury bond futures contracts with an expiration of September, 2013. Use the quotes given in the table above where the contract price is the \"Last\" quote and the apostrophe replaces the dash seen in your textbook. An initial margin is deposited for all contracts as noted in the text. You can ignore any potential margin calls on this problem. a. If interest rates rise, will the banker's position be favorable? Why or why not? b. If at the end of the contract (September 2013), the manager reverses the bank's position (sells all 20 contracts) and the contract is now quoted at 114'16, how much money was made or lost on the futures contract? c. Given the initial margin, what is the holding period rate of return (i.e., profit/initial margin)? 3. Use the quotes above 2 for this question also. Ignoring your work from Parts 1 & 2, now assume the bank is in an entirely different position and the manager chooses to hedge the bank's risk by selling (short) fifteen Eurodollar contracts with an expiration of August 2013. The contract price is the \"Last\" quote. An initial margin is deposited for all contracts as noted in your textbook. You can ignore potential margin calls on this problem. a. b. If at the end of the contract (August 2013), the manager reverses the bank's position (buys all 15 contracts) and the contract is now quoted at 98.95, how much money was made or lost on the futures contract? Given the initial margin, what is the holding period rate of return? Part 2: Interest rate options Below are snippets of the September 2013 option Eurodollar quotes (notice the first set of quotes is for calls and the second is for puts). Note that on the date of these quotes, the Eurodollar future is quoted at 1.30170 or 130.170% of the contract size, which is $1 million. The option prices in these quotes are given as % of $1,000,000. For example, the cost of the 1165 Call option = .1513% of $1,000,000 or $1513. Use these quotes to compute the profit or loss on the following option positions if when the options expire, the Eurodollar is quoted at 1175 or 117.5% of $1 million. In all cases, you are computing the profit or loss for ONE CONTRACT assuming that the option was purchased (or sold) at the \"Last\" rate (see bolded column name). Session: September 2013 Eurodollar Calls Open High Low Last Time 15:30 future 1.30430 1.31080 1.29950 1.30170 Jun 28 16:34 1165 0.15130 Jun 27 16:34 1170 0.14690 Jun 27 16:34 1175 0.14260 Jun 27 16:34 1180 0.13840 Jun 27 16:34 1185 0.13420 Jun 27 16:34 1190 0.13000 Jun 27 Strike Set Chg Pr. Day Set Vol Op Int 1.30230 -0.00290 231530 1.30520 200611 0.13750 -0.00290 - 0.14040 - 0.13260 -0.00290 - 0.13550 - 0.12760 -0.00300 - 0.13060 - 0.12270 -0.00300 - 0.12570 - 0.11780 -0.00300 - 0.12080 - 0.11300 -0.00300 - 0.11600 - Expiry 1195 Strike - - - 0.12590 Session: September, 2013 Puts Open High Low Last future 1.30430 1.31080 1.29950 1.30190 1160 1165 1170 1175 1180 1185 0.00030 0.00030 0.00030 0.00030 - - - 0.00045 0.00040 0.00060 0.00040 0.00060 - - - 0.00070 0.00060 0.00060 0.00050 0.00050 - - - 0.00100 1190 0.00070 0.00070 0.00070 0.00070 1195 0.00100 0.00100 0.00100 0.00100 1200 0.00100 0.00130 0.00100 0.00130 16:34 0.10820 -0.00290 Jun 27 Time 15:31 Jun 28 09:11 Jun 28 16:34 Jun 27 13:15 Jun 28 16:34 Jun 27 08:04 Jun 28 16:34 Jun 27 08:03 Jun 28 09:46 Jun 28 13:44 Jun 28 Set Chg - 0.11110 Pr. Day Set Vol - Op Int Expiry 1.30230 -0.00290 231530 1.30520 200611 0.00030 -0.00005 9 0.00035 -0.00005 0.00035 412 - 0.00045 -0.00005 21 0.00050 -0.00010 0.00040 22 0.00050 356 - 0.00060 85 0.00060 -0.00010 5 0.00070 749 0.00070 -0.00010 1 0.00080 301 0.00090 -0.00010 2 0.00100 328 0.00110 - 10 0.00110 310 0.00130 - 179 0.00130 3711 Option quotes for Eurodollar futures contracts Source: TradingCharts.com. (2013). Commodities futures price quotes. Retrieved fromhttp://futures.tradingcharts.com/marketquotes/E6.html Compute the profit or loss assuming the following positions (again, assuming that at maturity Eurodollars are quoted at 1175). 1. 2. 3. 4. 5. 6. 7. 8. You buy a 1165 call. You buy a 1165 put. You buy a 1190 call. You buy a 1190 put. You sell a 1195 call. You sell a 1195 put. You sell a 1170 call. You sell a 1170 put. Be sure to organize and label your work appropriately and submit only one document for grading. Upload your completed spreadsheet to the Week 6 Assignments page