A savings and loan association has long-term fixed-rate mortgages financed by short-term funds. It hedges by selling Treasury bond futures. If interest rates decline, and many mortgages are prepaid
Group of answer choices:
1)the gain on the futures contracts offsets the loss on the mortgages.
2)the gain on the mortgages offsets the loss on the futures contracts.
3)the gain on the futures contracts more than offsets any unfavorable effects on mortgages.
4)a loss on the futures contracts more than offsets the favorable effect on the mortgage portfolio.
