Question 4 Use the following to answer questions 1-6. Bank of Big Bucks ($ million) Assets: Liabilities and Net Worth: 270 day Treasury bills $500m 1 year Certificates of Deposit $550m 2 year consumer loans Demand Deposits $750m Fixed rate, 12% p.a. annually $275m 2 year Int'l Bonds $175m 7 year commercial loans $350m Fixed rate, 7.5% p.a. annually Fixed rate, 9% p.a. annually Overnight borrowing $350m 10 year fixed rate mortgages $675m Fixed rate, 6.5% p.a. monthly 10 year floating rate mortgages $125m Equity $100m LIBOR+50bp, monthly roll date Notes: The 1 year Certificates of Deposit pay 1.95% p.a. annually and will be rolled over at maturity. The 7 year commercial loans have a duration of 4.75 years. The fixed rate mortgages have a duration of 8.3 years. All values are market values and are trading at par. a) What is the bank's duration gap? (Note: Show all your calculations before you choose the right answer below. You must get the correct answer here. Otherwise, all your following answers will be deadly wrong!) a. -0.49 years b. +4.24 years c. -0.94 years d. -2.81 years e. +3.78 years