The Kromwell Community Bank's Asset Portfolio Has an Average Duration

question 102

Multiple Choice

The Kromwell Community Bank's asset portfolio has an average duration of 6 years and its liability portfolio has an average duration of 2.5 years.The bank has $500 million in total assets and $450 million in liabilities.The Kromwell Community Bank is thinking about hedging its risk by using a Treasury Bond futures contract whose underlying's duration is 7.5 years and has a price of $98,000.How many futures contracts will it need to hedge its risk?

• A)2,381 contracts
• B)2,551 contracts
• C)3,061 contracts
• D)4,464 contracts
• E)5,221 contracts