Consider the following balance sheet for a financial institution:

Assets		Liabilities and Equity
Treasury bills $1000	Duration = 0.5	Deposits $3000	Duration = 3
Loans $5000	Duration = 3	Federal funds $2000	Duration = .05

Equity = $1000

What is the duration of the FIs assets (D_A)?

What is the duration of the FIs liabilities (D_L)?

What is the FIs duration gap (D_A kD_L)?

What is the impact on the FIs equity value if the relative change in interest rates is an increase of 2% (i.e., R/(1+R) = .02).

Describe an appropriate hedge for this type of risk (you can, but you do not have to, provide more than one possibility)