3, (15 noints) Sunnose a bank has the following balance sheet. A) What is the...
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3, (15 noints) Sunnose a bank has the following balance sheet. A) What is the Modified Duration of Net Worth? What is the dollar amount change in net worth using duration approximation if per period interest rate goes up by 1% ? B) How would you duration-hedge this balance sheet with Treasury bond futures that are currently priced at $96 (per $100 in value of the underlying), assuming that the underlying bond has a modified duration of 3 periods? (I want to know the size of the position (NFPF), and also whether you long or short the futures. C) How would you duration-hedge this balance sheet with an interest rate swap with a fixed-rate side having a modified duration of 4 periods and a floating-rate side having a modified duration of 1 period? (I want to know the notional principal (NP) of the position, and also whether you receive the fixed rate or the floating rate.)
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