Suppose a bank has the following balance sheet. Assets Overnight Loans (D =0) $300 3-Year Treasuries (D =2.7 periods) $300 5-Year Loans (D = 4.5 periods) $300, Liabilities Long Term CDs (D =8 periods) $800 Net Worth $100

A) What is the Modified Duration of Net Worth? What is the dollar amount change in net worth using duration approximation if per period interest rate goes up by 1%?

B) How would you duration-hedge this balance sheet with Treasury bond futures that are currently priced at $96 (per $100 in value of the underlying), assuming that the underlying bond has a modified duration of 3 periods? (I want to know the size of the position ( ), and also whether you long or short the futures.)

C) How would you duration-hedge this balance sheet with an interest rate swap with a fixed-rate side having a modified duration of 4 periods and a floating-rate side having a modified duration of 1 period? (I want to know the notional principal (NP) of the position, and also whether you receive the fixed rate or the floating rate.)