Consumer loans	$150 million	Deposits	$450 million
Commercial Loans	$350 million	Equity	$50 million
Total Assets	$500 million	Total Liabilities & Equity	$500 million

The average duration of the loans is 8 years. The average duration of the deposits is 3 years.

Question 1: What is the change in the value of the FIs equity for a 1 percent increase in interest rates from the current rates of 10 percent (i.e., R = +0.01, and 1+R =1.10)?

	A.	$24,090,909
	B.	$22,727,273
	C.	$24,090,909
	D.	$22,727,273

Q2: Based on the estimate of gain or loss in #1, what is the number of T-bond futures contracts necessary to hedge the balance sheet if the duration of the deliverable bonds is 9 years and the current price of the futures contract is $98 per $100 face value? The size of each T-bond futures contract is $100,000. Do you long or short such futures contract?

	A.	Short 3,005 futures contract
	B.	Long 3,005 futures contract
	C.	Long 2,896 futures contract
	D.	Short 2,896 futures contract

Q3: Based on the estimate of gain or loss in #1, what is the number of T-bond futures contracts necessary to hedge the balance sheet if the duration of the deliverable bonds is 9 years and the current price of the futures contract is $98 per $100 face value? The size of each T-bond futures contract is $100,000, and the basis risk shows that br=[Rf/(1+Rf) ]/[R/(1+R)] = 1.2? Do you long or short such futures contract?

	A.	Long 2,413 futures contract
	B.	Short 2,504 futures contract
	C.	Short 2,413 futures contract
	D.	Long 2,504 futures contract