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

question 124

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 and if basis risk shows that for every 1 percent shock to interest rates,i.e. , $\Delta$ R/(1 + R) = 0.01,the implied rate on the deliverable bonds in the futures market increases by 1.1 percent,i.e. , $\Delta$ R_f/(1 + R_f) = 0.011?

• A)1,500 contracts.
• B)1,888 contracts.
• C)2,100 contracts.
• D)2,408 contracts.

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Definitions:

Injectable Medications

Medicines that are administered through a needle or syringe directly into the body's tissues, bypassing the digestive system.

Medication

Substances used to diagnose, treat, cure, or prevent disease, aiming to improve health conditions.

Expiration Date

The date until which a product, such as food, medicine, or chemical, is deemed safe to use or consume.

Intramuscular Injections

A method of delivering medication deep into the muscles, allowing for faster absorption than subcutaneous injections.