Springer County Bank has assets totaling $180 million with a duration of five years, and liabilities totaling

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Springer County Bank has assets totaling $180 million with a duration of five years, and liabilities totaling $160 million with a duration of two years. Bank management expects interest rates to fall from 9% to 8.25% shortly. A T-bond futures contract is available for hedging. Its duration is 6.5 years, and it is currently priced at 99 5/32. How many contracts does Springer need to hedge against the expected rate change? Assume each contract has a face value of $1,000,000.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...
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Financial Markets And Institutions

ISBN: 978-0132136839

7th Edition

Authors: Frederic S. Mishkin, Stanley G. Eakins

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