A Financial Institution has the following balance sheet. Provide step by step solutions.

Assets (millions)

Duration (years)

Liabilities+ E (millions)

Duration (years)

A1= $50

4

L1= $30

3

A2= $60

6

L2= $40

5

E= $20

How much is the duration gap in this case? What is the source of risk?

What happens to the equity if the interest rate increases from 7 percent by 70 basis points?

Assume that duration for the futures is 6.5 years and price for each unit is 95000. How many futures contracts are needed in this case in order to hedge via the futures?

How much is the gain from the hedge? What it the net effect (both on and off the balance sheet items)?