Consider the following balance sheet: Assets: 950 (10 years = modified duration) Liabilities: 860 in borrowed funds

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Consider the following balance sheet:

Assets: 950 (10 years = modified duration)

Liabilities: 860 in borrowed funds (2 years = modified duration)

90 in Equity

How would you hedge this balance sheet against a 1% increase in interest rates using an interest rate swap with a fixed rate payment with a modified duration of 6 years and a floating rate payment with a modified duration of 2 years?

c) Receive floating and pay fixed, NP =1,945 million <-- this is the answer; how do you calculate

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Vector Mechanics for Engineers Statics and Dynamics

ISBN: 978-0073212227

8th Edition

Authors: Ferdinand Beer, E. Russell Johnston, Jr., Elliot Eisenberg, William Clausen, David Mazurek, Phillip Cornwell

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Posted Date: Aug 27, 2020 06:01 AM

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Consider the following balance sheet: Assets: 950 (10 years = modified duration) Liabilities: 860 in borrowed funds

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To calculate the notional principal NP for the interest rate swap you need to consider the differenc... View the full answer

Vector Mechanics for Engineers Statics and Dynamics

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