The Average Duration of the Loans Is 10 Years What Is the Gain or Loss on the Futures Position

question 106

Multiple Choice

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $$\begin{array} { | l | r | l | r | } \hline \text { Consumer loans } & \$ 50 \text { million } & \text { Deposits } & \$ 235 \text { million } \\\hline \text { Commercial Loans } & \$ 200 \text { million } & \text { Equity } & \$ 15 \text { million } \\\hline \text { Total Assets } & \$ 250 \text { million } & \text { Total Liabilities \& Equity } & \$ 250 \text { million } \\\hline\end{array}$$ What is the gain or loss on the futures position using T-Bonds (Duration = 9 years, $96 per $100 face value) if the shock to interest rates is 1 percent [i.e.?R/(1 + R) = 0.01 and ?R_f/(1 + R_f) = 0.011]?

• A)$16,320,960 loss.
• B)$16,312,320 gain.
• C)$15,552,750 gain.
• D)$15,552,750 loss.
• E)$13,252,250 gain.

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