Refer again to problem 21. How does consideration of basis risk change your answers to problem 21?

a. Compute the number of futures contracts required to construct a macrohedge if [ΔRf/(1+Rf) / ΔR/(1+R)] = br = 0.90.

b. Explain what is meant by br = 0.90.

c. If br = 0.90, what information does this provide on the number of futures contracts needed to construct a macrohedge?

Data from Problem 21:

Consider the following balance sheet (in millions) for an FI:

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Assets Liabilities Duration = 2 years Equity Duration = 10 years $950 $860 90