Bank XYZ has the following market value balance sheet (expressed in millions of dollars) Assets...
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Bank XYZ has the following market value balance sheet (expressed in millions of dollars) Assets Short-term Loans 750 950 Liabilities 5-year CDs Net Worth Long-term Loans 250 50 The short-terms loans are zero coupon and repaid at the end of 1 year. The Long-term loans are zero coupon loans that mature in 4 years. On the liability side, the 5-year CDs are also zero coupon. Assume that the yield curve is flat and interest rates are 10% today. Suppose you want to duration hedge the bank's equity by buying a 6-year Treasury STRIP financed with overnight borrowing in the interbank market. How would you hedge against a 1% increase in interest rates using STRIPS? O Long 600 million Short 600 million O Long 500 million Short 500 million O Long 550 million
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