Better Buy Bank has assets of $225 million and liabilities of $180 million. The asset duration is 5 years and the duration of the liabilities is 4 years.
Market interest rates are 10 percent.This wishes to hedge the balance sheet with Treasury bond futures contracts which currently have a price quote of $96.75
per $100 face value for the benchmark 20-year market yield of 6.985 percent and duration of 13.50 years.
How many contracts are necessary to fully hedge the bank if the relationship of the price sensitivity of futures contracts to the price sensitivity of
underlying bonds were br = 0.95?