Answers%20Revision%20for%20Exam%201 - FUTURES a Short or...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
FUTURES a) Short or Long? Duration of Assets 6 Duration of Liabilities 4 Leverage coefficient 0.9 Duration gap 2.4 Duration gap is positive, hence FI is exposed to rise in interest rates. Thus, FI should take short position in Future contract b) How many contracts? Semiannual payments, therefore 40 periods 1. Duration of underlying bond YTM 4.26% FOUND VIA 'GOAL SEEK' 1 40 38 38 2 40 37 74 3 40 35 106 4 40 34 135 5 40 32 162 6 40 31 187 7 40 30 209 8 40 29 229 9 40 27 247 10 40 26 263 11 40 25 278 12 40 24 291 13 40 23 302 14 40 22 312 15 40 21 321 16 40 21 328 17 40 20 334 18 40 19 340 19 40 18 344 20 40 17 347 21 40 17 350 22 40 16 351 23 40 15 352 24 40 15 353 25 40 14 352 26 40 14 351 27 40 13 350 28 40 12 348 29 40 12 346 30 40 11 343 31 40 11 340 32 40 11 337 33 40 10 333 34 40 10 329 35 40 9 325 36 40 9 320 37 40 9 316 38 40 8 311 39 40 8 306 40 1040 196 7,834 Price 950 Duration of underlying bond 10.05 years 2. Number of contracts Total assets 150,000,000 Price of Future contract 95 quote price Face value 100,000 Number of contracts 377 c) Change in interest rates 100bp, -50bp? Market interest rates 10% On-balance sheet effect (3,272,727) Off balance sheet effect
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern