Suppose a Bank Has an Asset Duration of 5 Years

question 38

Multiple Choice

Suppose a bank has an asset duration of 5 years and a liability duration of 2.5 years. This bank has $1,000 million in assets and $750 million in liabilities. They plan on hedging with a Treasury bond futures contract which has an underlying duration of 8.5 years and which is selling right now for $99,000 for a $100,000 contract. How many futures contracts does this bank need to fully hedge itself against interest rate risk?

• A) 3,714 contracts
• B) 3,125 contracts
• C) 2,971 contracts
• D) 371 contracts
• E) 37 contacts

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Definitions:

Serious Attitude

Exhibiting a sincere and earnest approach towards tasks, responsibilities, or situations.

Reflective Communication Style

A communication approach that involves actively listening, understanding the speaker’s message, and responding thoughtfully and empathetically.

Social Endorsement

The approval, support, or recommendation of an idea, product, or person by the public or specific social groups.

Communication-Style Bias

A tendency to judge others based on the way they communicate, often leading to misunderstandings or undervaluation of ideas due to differences in communication methods.