The Average Duration of the Loans Is 10 Years What Is the Number of T-Bond Futures Contracts Necessary to Duration

question 125

Multiple Choice

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $\begin{array}{llr}\text { Consumer loans } & \$ 50 \text { million Deposits } & \$ 235 \text { million } \\\text { Commercial Loans } & \$ 200 \text { million Equity } & \$ 15 \text { million } \\\text { Total Assets } & \$ 250 \text { million Total Liabilities \& Equity } & \$ 250 \text { million }\end{array}$

What is the number of T-bond futures contracts necessary to hedge the balance sheet if the duration of the deliverable bonds is 9 years and the current price of the futures contract is $96 per $100 face value?

• A)1,630 contracts.
• B)1,475 contracts.
• C)1,900 contracts.
• D)2,078 contracts.

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Definitions:

Activity-Based Costing

Activity-based costing is an accounting method that assigns costs to products or services based on the activities required to produce them, aiming to provide more accurate product costing.

First Stage Allocations

The initial process of assigning overhead costs to different departments or cost pools in activity-based costing.

Supervising Activity

The process of overseeing and directing work activities and tasks to ensure they are executed efficiently and effectively, typically within a workplace.

Activity-Based Costing

A costing method that assigns costs to products and services based on the activities and resources that go into creating them.