(a) Discuss the repricing model and identify the performance variable it focuses on. In addition, briefly explain why the repricing model does not accurately measure a financial institution's interest rate risk exposure. (b) A financial institution has an 8% bond in issue, redeemable in 5years time at a premium of 10% (on $100 face value). Assuming that the current required interest rate is 10%, calculate the (Macaulay) duration of the bond. (c) Suppose the the manager of a financial institution calculates the duration of the financial institution's assets at 5 years and its liabilities at 3 years. Also suppose that the manager learns from the firm's economic forecasting unit that interest rates are expected to rise from 10 percent in the immediate future, that is increase in R = 1% = 0.01, 1+R = 1.10 The financial institution's balance sheet is assumed to be: ASSETS ($ millions) LIABILITIES($millions) Assets = 100 Liabilities = 90 Equity = 10 TOTALS 100 100 Required: i. Calculate the potential loss to equity holders ii. Prepare the market value balance sheet after the rise in rates by 1 percent. iii. Briefly discuss the ways in which the bank can immunize its balance sheet against interest rate movements