Consider the following balance sheet (expressed in millions of dollars): Assets Liabilities Overnight loans: $300...
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Consider the following balance sheet (expressed in millions of dollars): Assets Liabilities Overnight loans: $300 Long term debt: $1,000 (D = 9 years) 1-year Treasuries: $400 (D' = 0.5 years) Net worth: $200 3-year loans: $500 in (D' = 2.75 years) How would you duration hedge this balance sheet with an interest rate swap with a fixed-rate side having a modified duration of 10 years and a floating-rate side having a modified duration of 9 months if interest rates increased by 1%? What would be the notional principle (NP) on the swap? Receive fixed and pay floating, NP - 695 million Receive floating and pay fixed, NP = 695 million Receive fixed and pay floating, NP - 911 million Receive floating and pay fixed, NP = 803 million O Receive fixed and pay floating. NP = 803 million
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