Use for the next six questions. Florida Commercial Bank (FCB…
Use for the next six questions. Florida Commercial Bank (FCB) has assets of $600 million, liabilities of $525 million, and equity of $75 million. The average duration of its asset portfolio is 10 years and that for the portfolio of liabilities is 6 years. Market interest rates are 8%. FCB wishes to hedge its balance sheet with Treasury bond futures contracts. The futures contracts are currently quoted at 97-13 and have $100,000 face value. The benchmark long-term bond underlying the futures contract has a 7% coupon rate, a market yield of 7.25%, and a duration of 10.93 years. FCB has a leverage-adjusted duration gap of ___________years and needs to _____________ futures contracts in order to hedge.
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