a) What are the duration and the dollar duration of a 2-year T-note, paying a coupon rate of 6% p.a., trading at a yield to maturity of 4% p.a. semi- annual compounding

(b) Suppose your assets have a value of $100,000 and a duration of 5 while your liabilities have a value of $50,000 and duration of 2. You want to combine these assets and liabilities with a position in the above 2-year T-note in such a way that the duration of the combined portfolio is zero. This way, interest rate risks are hedged out. How much of the 2-year T-note (in terms of market value) do you need to buy/short-sell?

(c) Assume parallel shifts in the yield curve. Would the combined portfolio in part (b) be immune to very large changes in interest rates? Briefly explain your reasoning.