Your bank is exploring the possibility of using T-bond futures to minimize the exposure of shareholders to

Question:

Your bank is exploring the possibility of using T-bond futures to minimize the exposure of shareholders to changes in the interest rate. The market value of major assets and liabilities is given in the below:

The economics staff has used the rates of return on the asset and liability positions to compute the following long-run standard deviations and correlations:

If the current market value is $80,000 for a T-bond futures contract with a $100,000 face value, how many T-bond contracts will be needed to minimize shareholders' risk exposure to interest rate fluctuations?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...