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1.All accounts are valued at market. 2. All payments are to be made on schedule; there are no assumed defaults, prepayments, or early deposit withdrawals. 3.The interest rate on all business loans is initially assumed to be 4 percent and, on all deposits, 2 percent. 4.If interest rates change, they are assumed to change by equal percentage points (basis points ) for all securities. 5. The current price on IRFs is $95.00 per $100 FV with a contract size of $2,000,000.The duration of the deliverable security is xxx yrs. Assume that the sensitivity of the futures and spot rates (b ratio) is equal to xxx. 6.xxx denotes missing data that will be provided in tute classes.

Question 1: Using you knowledge of interest rate risk from todays lecture, you are to measure interest rate risk using the duration model. To complete this task, estimate the portfolio duration of assets and liabilities, and the duration gap, and then apply duration gap analysis to estimate the change in net worth arising from the interest change.