Interest Rate Risks: The balance sheet for Brad and Brian Bank, Inc. (BBI), is presented below ($millions):

Assets		Liabilities and Equity
Cash	30	Core Deposits	20
Federal Funds	20	Federal Funds	50
Loans (floating)	105	Euro CDs	130
Loans (fixed)	65	Equity	20
Total	220	Total 220

Notes to the balance sheet: The fed funds rate is 8.5 percent, the floating loan rate is LIBOR + 4 percent, and currently LIBOR is 11 percent. Fixed rate loans have five-year maturities, are priced at par, and pay 12 percent annual interest. The principal is repaid at maturity. Core deposits are fixed rate for two years at 8 percent paid annually. The principal is repaid at maturity. Euro CDs currently yield 9 percent.

1. What is the duration of the fixed-rate loan portfolio of Brad and Brian Bank?

2. If the duration of the floating-rate loans and fed funds is 0.36 year, what is the duration of BBIs assets?

3. What is the duration of the core deposits if they are priced at par?

4.If the duration of the Euro CDs and fed funds liabilities is 0.401 year, what is the duration of BBIs liabilities?

5. What is BBIs duration gap? What is its interest rate risk exposure?

6. What is the impact on the market value of BBIs equity if the relative change in all interest rates is an increase of 1 percent (100 basis points)? Note that the relative change in interest rates is R/(1+R) = 0.01.

7. What is the impact on the market value of BBIs equity if the relative change in all interest rates is a decrease of 0.5 percent (-50 basis points)?

8. What variables are available to BBI to immunize the bank? How much would each variable need to change to get DGAP equal to zero?