1. Consider the following balance sheet (expressed in millions of dollars): Assets Overnight loans: $300 1-year Treasuries: $300 (D* = 0.9 years) 3-year loans: $300 in (D* = 2.5 years) Liabilities Long term debt: $800 (D* = 6 years) Net worth: $100 How would you duration-hedge this balance sheet with an interest rate swap with a fixed-rate side having a modified duration of 4 years and a floating-rate side having a modified duration of 6 months if interest rates increased by 1%? What would be the notional principle (NP) on the swap? a) Receive fixed and pay floating, NP = 600 million b) Receive floating and pay fixed, NP = 720 million c) Receive fixed and pay floating, NP = 850 million d) Receive floating and pay fixed, NP = 1,240 million e) Receive fixed and pay floating, NP = 1,080 million