Question
Please show your work 1. Suppose a bank has an asset duration of 4 years and a liability duration of 2.75 years. This bank has
Please show your work
1. Suppose a bank has an asset duration of 4 years and a liability duration of 2.75 years. This bank has $1,050 million in assets and $780 million in liabilities. They are planning on trading in a Treasury bond future which has a duration of 7.5 years and which is selling right now for $98,500 for a $100,000 contract. How many futures contracts does this bank need to fully hedge itself against interest rate risk?
2. Suppose a Eurodollar time deposit futures contract has a duration of .6 years and has a current market price of $965,000. Market interest rates are 7.5 percent and are expected to fall to 6.5 percent. What is the change in this futures contract's market price from this change in interest rates?
3. An investor purchases one September T-bond futures contract at 116-210. The settlement price for the contract on next day is 118-120. What is the marked-to-market gain/loss for the investor?
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