Standard bank has assets of $ 150 million, liabilities of $ 135 million and equity of...

Standard bank has assets of $ 150 million, liabilities of $ 135 million and equity of $ 15 million. It asset duration is six years and the duration of the liabilities is for four years. Standards bank wishes to hedge the balance sheet with 20-year T-bond futures contracts, witch are currently trading at $95 per $100 face value and duration of 10.37 year. Note that T-bond futures are sold in $100000 face value per contract.

What is the duration gap of Standard Bank?

A.2 years B.3.2 years C.2.4 years D.-2.4 years

To establish the correct hedge ,Standard Bank should?

Long the T-bond future as an increase in interest rates will cause the value of the bank's equity to decrease.
Long the T-bond future as an increase in interest rates will cause the value of the bank's equity to increase.
Short the T-bond future as an increase in interest rates will cause the value of the bank's equity to decrease.
Short the T-bond future as an increase in interest rates will cause the value of the bank's equity to increase.

Assuming no basis risk, how many futures contracts are necessary to fully hedge the bank?

A.285 contracts B.365 contracts C.412 contracts D.304 contracts

If the relationship of the price sensitivity of futures contracts to the price sensitivity of underlying bonds were br=0.92, how many futures contracts are necessary to fully hedge the bank?

A.521 contracts B.384 contracts C.397 contracts D.487 contracts

Solutions

Expert Solution

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

jeff jeffy answered 1 year ago

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