A bank has assets of $500,000,000 and equity of $40,000,000. The assets have an average duration of 5.5 years, and the liabilities have an average duration of 2.5 years. An 8-year fixed-rate T-bond with the same coupon as the fixed-rate on the swap has a duration of 6 years, and the duration of a floating-rate bond that reprices annually is one year. The bank wishes to hedge its balance sheet with swap contracts that have notional contracts of $100,000. What is the optimal number of swap contracts into which the bank should enter?

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The optimal number of swap contracts is 3,200. The bank's assets have an average duration of 5.5 years, and the liabilities have an average duration of 2.5 years. The bank wishes to hedge its balance sheet with swap contracts that have notional contracts of $100,000. The duration of a floating-rate bond that reprices annually is one year. The bank should enter into 3,200 swap contracts to hedge its balance sheet.

A Bank Has Assets of $500,000,000 and Equity of $40,000,000