ints A $2,700 million FI has Dur, = 1.75 years and W.Dur = 1 years. The...
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ints A $2,700 million FI has Dur, = 1.75 years and W.Dur = 1 years. The managers wish to set the effective duration gap to 0.5 years using a swap. The bank is considering a 10 year annual payment/annual reset swap with the following terms: Fixed payments at 5.25% with a fixed duration of 8.029 years Variable payments at SOFR; SOFR is currently at 4.75%. The bank can choose to pay or receive either the variable or the fixed. a) If the bank sets up the swap appropriately, what is the swap's duration and required notional principal? Explain the sign of the swap duration. b) What is the first year profit change if the bank takes the swap? ) c) If fixed rates increase 24 basis points and SOFR increases 30 basis points what is the predicted swap value change in dollars? 2 3. + 5 a 5 2 3 ) 2 5 5 b) 2 3 ) 2 3 1 5 5 2 3 ) 2 B ints A $2,700 million FI has Dur, = 1.75 years and W.Dur = 1 years. The managers wish to set the effective duration gap to 0.5 years using a swap. The bank is considering a 10 year annual payment/annual reset swap with the following terms: Fixed payments at 5.25% with a fixed duration of 8.029 years Variable payments at SOFR; SOFR is currently at 4.75%. The bank can choose to pay or receive either the variable or the fixed. a) If the bank sets up the swap appropriately, what is the swap's duration and required notional principal? Explain the sign of the swap duration. b) What is the first year profit change if the bank takes the swap? ) c) If fixed rates increase 24 basis points and SOFR increases 30 basis points what is the predicted swap value change in dollars? 2 3. + 5 a 5 2 3 ) 2 5 5 b) 2 3 ) 2 3 1 5 5 2 3 ) 2 B
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