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Assume you have the following asset and liability in your Balance Sheet: Asset (Bond A) Modified Duration = 2.6 years Value= $1.5 million Liability -

Assume you have the following asset and liability in your Balance Sheet:

Asset (Bond A)

Modified Duration = 2.6 years

Value= $1.5 million

Liability - Bond B Modified Duration = 3.1 years

Value = $1 million

a. Calculate the duration gap. (5 marks)

b. What is the expected change in Net Worth if interest increases by 1%? Assume previous interest is 10%

c. What should or could you to achieve immunized balance sheet? (5 marks)

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