What is the net payment this year

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1) A bank has a $80 million mortgage bond risk position which it hedges in the Treasury bond futures markets at the Chicago Board of Trade. Approximately how many contracts are needed to be held in the hedge?

2) On June 1, you contract to take delivery of 1 ounce of gold for $965. The agreement is good for any day up to July 1. Throughout June, the price of gold hit a low of $960 and hit a high of $990. The price settled on June 30 at $980, and on July 1st you settle your futures agreement at that price. Your net cash flow is:

3) Firm A is paying $750,000 in interest payments a year while Firm B is paying LIBOR plus 75 basis points on $10,000,000 loans. The current LIBOR rate is 6.5%. Firm A and B have agreed to swap interest payments. What is the net payment this year?

4) A mortgage banker had made loan commitments for $20 million in 3 months. How many contracts on Treasury bonds futures must the banker write or buy?

5) Duration is defined as the weighted average time to maturity of a financial instrument. Explain how this knowledge can help protect against interest rate risk.

Reference no: EM131883628

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