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Question 5 Consider the following balance sheet of an FI: Assets ($000) Liabilities ($000) Duration = 10 years $950 Duration = 2 y years Equity
Question 5 Consider the following balance sheet of an FI: Assets ($000) Liabilities ($000) Duration = 10 years $950 Duration = 2 y years Equity $860 $ 90 a) What is the impact on the FI's equity value if all interest rates increase such that AR/(1+R) = 0.01? b) How can the FI use futures contracts to put on a macro hedge? (Note: You first need to find out the duration gap) c) Suppose that the FI put on a macro hedge using zero-coupon bond futures that are currently priced at 96. What is the impact on the FI's futures position (in terms of AF per contract) if all interest rates increase such that AR/(1+R) = 0.01? The deliverable zero-coupon bond has a maturity of 7 years. d) After interest rate change of AR/(1+ R) 0.01, what is the net impact on the FI's equity, if the FIs hedge used 8 futures contracts as described in b) and c)? e) If the FI wanted to put on a perfect macro hedge, how many more or fewer such bond futures contracts are needed? Question 5 Consider the following balance sheet of an FI: Assets ($000) Liabilities ($000) Duration = 10 years $950 Duration = 2 y years Equity $860 $ 90 a) What is the impact on the FI's equity value if all interest rates increase such that AR/(1+R) = 0.01? b) How can the FI use futures contracts to put on a macro hedge? (Note: You first need to find out the duration gap) c) Suppose that the FI put on a macro hedge using zero-coupon bond futures that are currently priced at 96. What is the impact on the FI's futures position (in terms of AF per contract) if all interest rates increase such that AR/(1+R) = 0.01? The deliverable zero-coupon bond has a maturity of 7 years. d) After interest rate change of AR/(1+ R) 0.01, what is the net impact on the FI's equity, if the FIs hedge used 8 futures contracts as described in b) and c)? e) If the FI wanted to put on a perfect macro hedge, how many more or fewer such bond futures contracts are needed
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