The Average Duration of the Loans Is 10 Years Assume That the Hedge Was Placed as Indicated in a Duration

question 41

Multiple Choice

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $\begin{array}{llr}\text { Consumer loans } & \$ 50 \text { million Deposits } & \$ 235 \text { million } \\\text { Commercial Loans } & \$ 200 \text { million Equity } & \$ 15 \text { million } \\\text { Total Assets } & \$ 250 \text { million Total Liabilities \& Equity } & \$ 250 \text { million }\end{array}$
Assume that the hedge was placed as indicated in a prior question,and that the BP futures contract is trading at $1.62/ $\le$ .Assume the futures contract has some days remaining to maturity.What will be the gain or loss on the hedge if it is unwound at this price?

• A)$4,280,000 loss.
• B)$4,000,000 loss.
• C)$4,280,000 gain.
• D)$4,000,000 gain.

---

Definitions:

Parent-Company Extension Method

An accounting approach used in consolidation, where the parent company's financial statements extend to include the subsidiary's transactions and balances.

Goodwill

Goodwill is an intangible asset that arises when a company acquires another business for more than the fair value of its net identifiable assets.

NCI

Non-Controlling Interest, which refers to the equity in a subsidiary not attributable, directly or indirectly, to the parent company.

Common Shares

Equity securities representing ownership in a company, giving holders voting rights and a share in the company's profits via dividends.