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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 gain or loss on the futures position using T-Bonds (Duration = 9 years, $96 per $100 face value) if the shock to interest rates is 1 percent [i.e. ΔR/(1 + R) = 0.01 and ΔRf/(1 + Rf) = 0.011]?
A. $16,320,960 loss.
B. $16,312,320 gain.
C. $15,552,750 gain.
D. $15,552,750 loss.
E. $13,252,250 gain.
Answer
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