Consider the following balance sheet (in millions) for an FI: (LG 23-1, LG 23-2) Assets Liabilities Duration = 10 years $950 Duration = 2 years $860 Equity

a. What is the FI's duration gap?

b. What is the FI's interest rate risk exposure? 90

c. How can the FI use futures and forward contracts to cre- ate a macrohedge?

d. What is the impact on the FI's equity value if the relative change in interest rates is an increase of 1 percent? That is, AR/(1+ R)=0.01.

e. Suppose that the FI in part

(c) macrohedges using Trea- sury bond futures that are currently priced at