ASSETS LIABILTIES

Cash 10 Core Deposits 60

Fed funds 30 Fed funds 50

Loans (floating) 80 Euro CDs 30

Loans (fixed) 40 Equity 30

TOTAL 170 170

The fixed rate loans are 10 year, 8% (annual) coupon bonds with a yield of 6%.

Cash and fed funds have a 0 duration.

Floating loans have a duration of 1.0.

All liabilities have a duration of 0.50.

2. What is the duration of the assets? (3)

3. What is the duration of the liabilities? (3)

4. What is the duration gap? (3)

5. If all rates increase by 2%, what is the approximate percentage change in equity? (3