The Average Duration of the Loans Is 10 Years

question 38

Multiple Choice

The average duration of the loans is 10 years. The average duration of the deposits is 3 years. 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. ΔR/(1 + R) = 0.01 and ΔR_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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Definitions:

Direct Materials

Basic substances that can be directly linked to the production process of a product.

Direct Labor Costs

The expenses associated with the wages of employees who are directly involved in the production or manufacturing of goods or services.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to products or job orders based on a projected activity level.

General Ledger

The main accounting record of a company that uses double-entry bookkeeping, containing all the financial accounts and statements.