This is another exam type question, covering numerouse subtopics. Consider the following balance sheet (in million)...
This is another exam type question, covering numerouse subtopics. Consider the following balance sheet (in million) for a bank:
Assets
Duration :10years $950
Liabilities and equity
Duration : 2 years $860
Equity : $90
The bank’s leverage adjusted duration gap is ____________ (calculate to two decimals). With this duration gap the bank should worry about __________(rising/falling) interest rates. In fact, if the relative change in interest rates is an increase of 1 per cent, that is ΔR/(1 + R) = 0.01, equity would change by _______ million dollars (use + / - to indicate increases / falls). The bank could __________ (buy/sell) bond futures to create a macrohedge. Suppose that T-bond futures (contract size 1 million are currently priced at 960.000. The deliverable T-bond has a duration of nine years. Calculate how many contracts the bank should trade to hedge its risk. The rounded number of contracts is__________________ .
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This is another exam type question, covering numerouse
subtopics. Consider the following balance sheet (in million)...
This is another exam type question, covering numerouse subtopics. Consider the following balance sheet (in million)...
This is another exam type question, covering numerouse subtopics. Consider the following balance sheet (in million) for a bank: Liabilities Assets Duration- 10 years $950 Duration-2 years $860 $90 Equity- The bank's leverage adjusted duration gap is about R) 0.01, equity would change by (calculate to two decimals). With this duration gap the bank should worry rising/falling) interest rates. In fact, if the relative change in interest rates is an increase of 1 per cent, that is AR/(1 million dollars...
Consider the following balance sheet (in millions) for an FI: Assets Duration = 13 years $...
Consider the following balance sheet (in millions) for an FI: Assets Duration = 13 years $ 970 Liabilities Duration = 5 years Equity $ 900 70 a. What is the Fl's duration gap? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) b. What is the Fl's interest rate risk exposure? c. How can the Fl use futures and forward contracts to create a macrohedge? d. What is the impact on the Fi's equity value...
4. Consider the following balance sheet (in millions) for an FI: Assets Duration = 10 years...
4.
Consider the following balance sheet (in millions) for an FI: Assets Duration = 10 years $ 910 Liabilities Duration = 4 years Equity $ 810 100 a. What is the Fl's duration gap? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) b. What is the Fl's interest rate risk exposure? c. How can the Fl use futures and forward contracts to create a macrohedge? d. What is the impact on the FI's equity...
5. Village Bank has $210 million worth of assets with a duration of 14 years and...
5.
Village Bank has $210 million worth of assets with a duration of 14 years and liabilities worth $168 million with a duration of four years. In the interest of hedging interest rate risk, Village Bank is contemplating a macrohedge with interest rate T-bond futures contracts now selling for 102-20 (30nds). The T-bond underlying the futures contract has a duration of nine years. If the spot and futures interest rates move together, how many futures contracts must Village Bank sell...
Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15 million....
Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. The duration the assets is two years and the duration of the liabilities is ten years. Row Banks has a __adjusted duration gap. A position in T-bond futures should be used to hedge the interest rate risk Select one: O a. negative; short b. negative; long c. positive; short d. positive; long
3. Hedge Row Bank has the following balance sheet (in millions): $ 189 $210 Liabilities Assets...
3.
Hedge Row Bank has the following balance sheet (in millions): $ 189 $210 Liabilities Assets Equity 21 $ 210 $210 Total Total The duration of the assets is 7 years and the duration of the liabilities is 5 years. The bank is expecting interest rates to fall from 10 percent to 9 percent over the next year. a. What is the duration gap for Hedge Row Bank? (Round your answer to 2 decimal places. (e.g., 32.16)) b. What is...
Hedge Row Bank has the following balance sheet (in millions): Assets $135 $150 Liabilities Equity $150...
Hedge Row Bank has the following balance sheet (in millions): Assets $135 $150 Liabilities Equity $150 Total 15 Total Sise The duration of the assets is 6 years and the duration of the liabilities is 4 years. The bank is expecting interest rates to fall from 10 percent to 9 percent over the next year. a. What is the duration gap for Hedge Row Bank? (Round your answer to 1 decimal place. (e.g.. 32.1)) b. What is the expected change...
An Fl has a $290 million asset portfolio that has an average duration of 8.0 years....
An Fl has a $290 million asset portfolio that has an average duration of 8.0 years. The average duration of its $250 million in liabilities is 6.6 years. Assets and liabilities are yielding 9 percent. The Fl uses put options on T-bonds to hedge against unexpected interest rate increases. The average delta (d) of the put options has been estimated at -0.1 and the average duration of the T-bonds is 8.5 years. The current market value of the T-bonds is...
A bond fund currently holds a bond portfolio with a face value of $10 million....
A bond fund currently holds a bond portfolio with a face value of $10 million. The current market value of the portfolio is only 92.2% of face, however. The fund’s managers anticipate a rise in bond yields (interest rates) in the near future, so they desire a T-bond hedging strategy to protect themselves. Given their rate expectations, should they short or go long in T-bond futures? Explain. The risk managers use $100,000 face value T-bond contracts. If they use...
1) Earnings sensitivity analysis involves: A) always using parallel yield curve movements B) allowing asset yields...
1) Earnings sensitivity analysis involves: A) always using parallel yield curve movements B) allowing asset yields and liability costs to change by different amounts C) ignoring the impact of embedded options to make the analysis more clear D) ignoring the time at which rates on assets and liabilities change E) all of the above F) none of the above 2) If a bank has a negative duration gap, the value of its equity is expected to: A) decline if interest...
This is another exam type question, covering numerouse subtopics. Consider the following balance sheet (in million) for a bank: Liabilities Assets Duration- 10 years $950 Duration-2 years $860 $90 Equity- The bank's leverage adjusted duration gap is about R) 0.01, equity would change by (calculate to two decimals). With this duration gap the bank should worry rising/falling) interest rates. In fact, if the relative change in interest rates is an increase of 1 per cent, that is AR/(1 million dollars...
Consider the following balance sheet (in millions) for an FI: Assets Duration = 13 years $ 970 Liabilities Duration = 5 years Equity $ 900 70 a. What is the Fl's duration gap? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) b. What is the Fl's interest rate risk exposure? c. How can the Fl use futures and forward contracts to create a macrohedge? d. What is the impact on the Fi's equity value...
4.
Consider the following balance sheet (in millions) for an FI: Assets Duration = 10 years $ 910 Liabilities Duration = 4 years Equity $ 810 100 a. What is the Fl's duration gap? (Do not round intermediate calculations. Round your answer to 2 decimal places. (e.g., 32.16)) b. What is the Fl's interest rate risk exposure? c. How can the Fl use futures and forward contracts to create a macrohedge? d. What is the impact on the FI's equity...
5.
Village Bank has $210 million worth of assets with a duration of 14 years and liabilities worth $168 million with a duration of four years. In the interest of hedging interest rate risk, Village Bank is contemplating a macrohedge with interest rate T-bond futures contracts now selling for 102-20 (30nds). The T-bond underlying the futures contract has a duration of nine years. If the spot and futures interest rates move together, how many futures contracts must Village Bank sell...
Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. The duration the assets is two years and the duration of the liabilities is ten years. Row Banks has a __adjusted duration gap. A position in T-bond futures should be used to hedge the interest rate risk Select one: O a. negative; short b. negative; long c. positive; short d. positive; long
3.
Hedge Row Bank has the following balance sheet (in millions): $ 189 $210 Liabilities Assets Equity 21 $ 210 $210 Total Total The duration of the assets is 7 years and the duration of the liabilities is 5 years. The bank is expecting interest rates to fall from 10 percent to 9 percent over the next year. a. What is the duration gap for Hedge Row Bank? (Round your answer to 2 decimal places. (e.g., 32.16)) b. What is...
Hedge Row Bank has the following balance sheet (in millions): Assets $135 $150 Liabilities Equity $150 Total 15 Total Sise The duration of the assets is 6 years and the duration of the liabilities is 4 years. The bank is expecting interest rates to fall from 10 percent to 9 percent over the next year. a. What is the duration gap for Hedge Row Bank? (Round your answer to 1 decimal place. (e.g.. 32.1)) b. What is the expected change...
An Fl has a $290 million asset portfolio that has an average duration of 8.0 years. The average duration of its $250 million in liabilities is 6.6 years. Assets and liabilities are yielding 9 percent. The Fl uses put options on T-bonds to hedge against unexpected interest rate increases. The average delta (d) of the put options has been estimated at -0.1 and the average duration of the T-bonds is 8.5 years. The current market value of the T-bonds is...
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