1. Suppose that you are offered a 12% fixed-rate payment over the next 15 years. The durationof the swap is 26.4. Youare managing a firmwith $3.7 million of assets and adurationgap of 1.7 years. How much notional principal would you want the swap to have? 2. Suppose that the pension fund you are managing is holding $60 million of five-year bonds,and if their interest rates fall by 1%, the bonds rise in price by 4.3 points. When the interestrates fall by 1%, the five-year Treasurybond contract rises by 5.7 points. The interestrateon five-year Treasurybonds on average changes by 1.30 when the interest rate ontheTreasurybond futures contract changes by 1 point. The value of the future contract is$125,000per five-year Treasurybond. What should you do in the option market to hedgethe interest-rate risk on the $60 million of five-year bonds?