Question 22 Assets Liabilities 5-year 750 Short-term Loans 950 CDS 250 Net Worth 50 Long-term Loans The short-term loans are zero coupon and repaid at the end of 1 year. The Long-term loans are zero coupon loans that mature in 5 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 156 increase in interest rates using STRIPS? Short 458 million Long 458 million Long 500 million Short 500 million Long 550 million
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