Duxton Bank has the following balance sheet (in millions).

Assets		Liabilities
Duration = 10 years	$85	Duration = 2 years	$70
		Equity =	$15

(a) What is Duxton Bank's duration gap? (2 marks)

(b) What kind of interest rate risk is Duxton Bank exposed to? (1 mark)

(c) Should the bank go short or long on futures contracts to establish the correct macrohedge? (1 mark)

(d) What is the impact on Duxton Bank's equity value if the relative change in interest rates is an increase of 1 per cent? That is, DR/(1 + R) = 0.01. (2 marks)

(e) Suppose that Duxton Bank macrohedges using T-bond futures that are currently priced at 96. What is the impact on Duxton Bank's futures position if the relative change in all interest rates in the T-bond futures market is an increase of 1 per cent? That is, DR/(1 + R) = 0.01. Assume that the deliverable T-bond has a duration of nine years. (2 marks)

(f) If the FI wants to macrohedge, how many T-bond futures contracts does it need? (2 marks)