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Question
The average duration of the loans is 10 years. The average duration of the deposits is 3 years.
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., ΔR/(1 + R) = 0.01, the implied rate on the deliverable bonds in the futures market increases by 1.1 percent, i.e., ΔRf/(1 + Rf) = 0.011?
A. 1,500 contracts.
B. 1,888 contracts.
C. 2,100 contracts.
D. 2,408 contracts.
E. 3,100 contracts.
Answer
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