Let assume that the average duration of the loans in a firm is 10 years. The average duration of its deposits is 4 years with k=L/A = 0.8 and total asset=$200 million. What is the gain or loss on the futures position (that hedges against the risk of the rise in interest rate) using T-Bonds (Duration = 9 years, $96 per $100 face value, minimum contract size = $100,000).

If the shock to interest rates is 1 percent (increase) while the current interest rate is 10%?

Answer rating: 100% (QA)

To calculate the gain or loss on the futures position we need to first determine the duration of the ... View the full answer