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A bank has assets of $ 10 million earning an average yield of 5 percent with a weighted duration of 1.5 years. It has liabilities of $ 9 million paying an average rate of 1.5 percent with a weighted duration of 3.5 years. The bank wants to construct a macro hedge to reduce interest rate risk as much as possible, and plans to trade three-month Eurodollar futures currently trading at 2 percent.
a. Should the bank buy or sell Eurodollar futures?
b. How many futures contracts should the bank trade?
c. If cash interest rates rise an average of 1 percent and the Eurodollar futures rate rises by 1.10 percent, calculate how much the bank's market value of equity will change and how much the bank would earn or lose on its futures position. Was this a successful hedge?
Webster Industrial Products just signed a sales contract with a new customer. What is this contract worth as of the end of year 4 if the following payments will be received and the firm earns 5 percent on its savings? Year 1 84,000, year 2 113,000, y..
A company must make yearly payments starting at $100,000 and increasing by 6% every year for 10 years. Payments are due at the end of each year. They can invest in a portfolio of coupon-paying bonds that vary in term from 1 to 10 years (a total of 10..
straight supply ltbrgt ltbrgtstraight supply is a major supplier of medical components to large pharmaceutical
Which one of the following defines the cash cycle?
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E88 is an innovative company run on the principles of its entrepreneurial owner. The company has a diverse range of operations including a carbon neutral package distribution service, 'responsibly' sourced clothing for children, mobile telephones and..
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