The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $$\begin{array} { | l | r | l | r | }
\hline \text { Consumer loans } & \$ 50 \text { million } & \text { Deposits } & \$ 235 \text { million } \
\hline \text { Commercial Loans } & \$ 200 \text { million } & \text { Equity } & \$ 15 \text { million } \
\hline \text { Total Assets } & \$ 250 \text { million } & \text { Total Liabilities \& Equity } & \$ 250 \text { million } \
\hline
\end{array}$$ Assume that the hedge was placed as indicated in a prior question, and that the BP futures contract is trading at $1.62/?.Assume the futures contract has some days remaining to maturity.What will be the gain or loss on the hedge if it is unwound at this price?
A)$4,280,000 loss.
B)$4,000,000 loss.
C)$4,280,000 gain.
D)$4,000,000 gain.
E)$6,400,000 gain.

Question

The average duration of the loans is 10 years.The average duration of the deposits is 3 years. $$\begin{array} { | l | r | l | r | } 
\hline \text { Consumer loans } & \$ 50 \text { million } & \text { Deposits } & \$ 235 \text { million } \
\hline \text { Commercial Loans } & \$ 200 \text { million } & \text { Equity } & \$ 15 \text { million } \
\hline \text { Total Assets } & \$ 250 \text { million } & \text { Total Liabilities \& Equity } & \$ 250 \text { million } \
\hline
\end{array}$$ Assume that the hedge was placed as indicated in a prior question, and that the BP futures contract is trading at $1.62/?.Assume the futures contract has some days remaining to maturity.What will be the gain or loss on the hedge if it is unwound at this price?
A)$4,280,000 loss.
B)$4,000,000 loss.
C)$4,280,000 gain.
D)$4,000,000 gain.
E)$6,400,000 gain.

Quizplus · Accepted Answer

The gain or loss on a hedge depends on the difference between the initial futures contract price and the price at which it is unwound. Without the initial futures contract price, specific details on the hedge position, or the direction of the hedge (whether it was a short or long position), it's impossible to accurately calculate the gain or loss from the provided information. Therefore, any specific numerical answer cannot be justified without additional context or assumptions.

The Average Duration of the Loans Is 10 Years Assume That the Hedge Was Placed as Indicated in a Duration