Question: Village Bank has 240 million worth of assets with
Village Bank has $ 240 million worth of assets with a duration of 14 years and liabilities worth $ 210 million with a duration of four years. In the interest of hedging interest rate risk, Village Bank is contemplating a macrohedge with interest rate T-bond futures contracts now selling for 102-21 (32nds). The T-bond underlying the futures contract has a duration of nine years. If the spot and futures interest rates move together, how many futures contracts must Village Bank sell to fully hedge the balance sheet?
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