Your bank is exploring the possibility of using T-bond futures to minimize the exposure of shareholders to changes in the interest rate. The market value of major assets and liabilities is given in the balance sheet below:
The economics staff has used the rates of return on the asset and liability positions to compute the following long-run standard deviations and correlations:
If the current market value is $80,000 for a T-bond futures contract with a $100,000 face value, how many T-bond contracts will be needed to minimize shareholders; risk exposure to interest rate fluctuations?