Suppose a Bank Has an Asset Duration of 5 Years

question 54

Multiple Choice

Suppose a bank has an asset duration of 5 years and a liability duration of 2.5 years.The bank has $1,000 million in assets and $750 million in liabilities.It is planning to trade in Treasury bond futures whose underlying's duration is 8.5 years and is currently selling at $99,000 for a $100,000 contract.How many futures contracts does the 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)None of the options are correct

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