As of October 30, 2020, the Federal Reserve Bank balance sheet showed capital or equity of $39.2 billion. On the asset side, the Feds portfolio of securities included $3,792 billion of Treasury bonds, notes, and bills plus mortgage-backed securities. Assume the portfolio of Treasury securities has a modified duration of 5.3 years. Also, assume that if interest rates change, the Feds other assets and its liabilities will not change in value. That is not really true but the calculation is less complicated and at any rate, the changes of these other assets and liabilities will offset. Some analysts and critics believe financial institutions should mark to market [meaning their assets should be valued at market prices] to represent fairly the institutions portfolio. If the Fed were required to mark to market like other financial institutions, how much would interest rates have to change to generate a capital loss on its securities portfolio large enough to eliminate the Feds capital?

1. Interest Rates must rise 0.20%
2. Interest Rates must rise 0.28%
3. Interest Rates must rise 0.37%
4. Interest Rates must rise 0.41%
5. Interest Rates must rise 0.49%