Question: Using an Interest Rate Swap, fully hedge a $100M bond portfolio. The portfolio has a duration of 7 years. The swap has a duration of

  1. Using an Interest Rate Swap, fully hedge a $100M bond portfolio. The portfolio has a duration of 7 years. The swap has a duration of 3 years. Solve for the required Notional Principal of the swap.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

Q:

Delta y = 1% 7. 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...

Q:

Hedging With Swaps You are in risk management at a bank and are trying to hedge the interest rate risk of a $75 billion bond portfolio with a duration of 8. To do so, you would like to purchase...

Q:

You are in risk management at a bank and are trying to hedge the interest rate risk of a $75 billion bond portfolio with a duration of 5. To do so, you would like to purchase 5-year swaps with a swap...

Q:

You are in risk management at a bank and are trying to hedge the interest rate risk of a $75 billion bond portfolio with a duration of 5. To do so, you would like to purchase 5-year swaps with a swap...

Q:

An insurance company holds a $100m bond portfolio with average duration of 10 years, and thus receives a fixed coupon. The management is afraid of interest rate risk. How should the company use IR...

Q:

Problem 8-16 (algorithmic) Question Help Falcor (US). Falcor is the U.S.-based automotive parts supplier that was spun-off from General Motors in 2000. With annual sales of over $26 billion, the...

Q:

Will rate thumbs up! Drop down options include 'Falcor', 'General Motors' or 'The Swap Dealer' Falcor (US). Falcor is the U.S.-based automotive parts supplier that was spun-off from General Motors in...

Q:

. Falcor (US). Falcor is the US-based automotive parts supplier that was spun-off from General Motors in 2000 With annual sales of over $26 billion, the company has expanded its markets far beyond...

Q:

A fund manager would like to use an interest rate swap to hedge a bond portfolio. The portfolio has $15,299,435 invested in corporate bonds and $56,133,684 invested in Treasury bonds. The modified...

Q:

A fund manager would like to use an interest rate swap to hedge a bond portfolio. The portfolio has $15,129,379 invested in corporate bonds and $72,170,888 invested in Treasury bonds. The modified...

Q:

(-d)(- ) (b-c)(d-b) sin x cos x tan x =k, then be+ 14. If ak is equal to a b. ck 1+ bk a+ a 3) 4) k 15. The minimum value of the expression sino+sinB+ siny, where o, B,Y are real numbers satistying...

Q:

TRUE-FALSE QUESTIONS 1. There is one set of control activities that all organizations should implement. 2. Control activities include both preventive and detective controls. 3. An organizations...

Q:

A contractor agrees to inflate the estimate for repair of damages to a client s home so the client does not have to pay his $ 1 , 0 0 0 homeowners insurance deductible. This is an example of:

Q:

Which of the following are problems with identifying users of ABC? Multiple select question. ABC means different things to different organizations. Organizations will announce the discontinuance of...

Q:

This book covers four human resource management practice areas: managing the human resource environment, acquiring and preparing human resources, assessment and development of human resources, and...

Q:

Carry out a risk assessment exercise for an activity that you take part in. It might be a local amateur football or netball team, drama event or similar.

Q:

Many have suggested that OSHA penalties are too weak and misdirected (aimed at employers rather than employees) to have any significant impact on employee safety. Do you think that OSHA-related...