Reference no: EM131482872
Tree Row Bank has assets of $150 million, liabilities of $135 million, and equity of $15 million. The asset duration is six years and the duration of the liabilities is four years. Market interest rates are 10 percent. Tree Row Bank wishes to hedge the balance sheet with Treasury bond futures contracts, which currently have a price quote of $95 per $100 face value for the benchmark 20-year, 8 percent coupon bond underlying the contract, a market yield of 8.5295 percent, and a duration of 10.3725 years.
a.
b. c.
d.
e.
A. Should the bank go short or long on the futures contracts to establish the correct macro- hedge?
B. How many contracts are necessary to fully hedge the bank?
C.Verify that the change in the futures position will offset the change in the cash balance sheet position for a change in market interest rates of plus 100 basis points and minus 50 basis points.
D. If the bank had hedged with Treasury bill futures contracts that had a market value of $98 per $100 of face value and a duration of 0.25 years, how many futures contracts would have been necessary to fully hedge the balance sheet?
E. What additional issues should be considered by the bank in choosing between T-bond or T- bill futures contracts?
|
Calculate the circumference a circle
: Calculate the Circumference a circle. Input: one number 3)Convert the temperature from Celcius to Farenheit Input: one number.
|
|
Project on recycling of papers
: Prepare a project on given topic - Topic is recycling of papers
|
|
Compare and contrast the of theories of goal setting
: Compare and contrast the significant similarities and differences among the theories of goal setting, self-efficacy, and reinforcement.
|
|
Describe the case of adam smith
: Adam Smith, in his famous book The Wealth of Nations, noted, "Every individual neither intends to promote the public interest, nor knows how much.
|
|
Establish the correct macro-hedge
: Should the bank go short or long on the futures contracts to establish the correct macro- hedge?
|
|
Describe the iterative-incremental development model
: Describe the iterative/incremental development model. Discuss when it is appropriate to use the waterfall or iterative/incremental development model.
|
|
Should your company buy these trucks
: Should your company buy these trucks? Show the capital budgeting process (Projecting cash flow, Calculating NPV and IRR, and your decision.)
|
|
Does this affect the effort they expend on teaching
: When professors get tenure, essentially guaranteeing them lifetime jobs, does this affect the effort they expend on teaching and research? What concept might.
|
|
What is the purpose of a warranty given by a used-car dealer
: What is the purpose of a warranty given by a used-car dealer? Evaluate one used-car warranty that gives your money back if not satisfied in a certain time.
|