Consider the following bank balance sheet (fixed rates and pure discount securities unless indicated otherwise). Interest rates on liabilities (yL)are 4 percent and on assets (yA) are 6 percent.

Duration	($million)	(years)
Super Now Checking Accts (rates set daily)	$200	1.0
6-month Certificates of Deposit	$80	0.5
3-year Certificates of Deposit	$100	3.0
Total Liabilities	$380	?
Net Worth	$20	--
Total Liabilites and Net Worth	$400	?
Prime-Rate Loans (rates set daily)	$100	2.0
2-Year Auto Loans	$130	1.0
30- Year Mortgages	$170	7.0
Total Assets	$400	?

a. What is the duration of assets and the duration of liabilities?

b. The bank will (benefit)/(be hurt) if all interest rates rise. Define your terms and state clearly your assumptions. Setting E equal zero implies: D_a/(1+y_a)=(L/A)((D_L)(1+y_L))

E = change in the market value of equity,

D_a = duration of assets,

D_L = duration of liabilities,

L = market value of liabilities,

A = market value of assets, and

y = change in interest rates.

c. What is the duration of assets that would be necessary to immunize the market value of equity from interest rate changes for this banks portfolio holding the DL constant?