The balance sheet of an FI looks like Asset Side 1. $75 million of Cash 2. $750 million of Loans earning 12% per year and having a duration of 1.75 years 3. $175 million of Treasuries earning 9% per year and having a duration of 7 years Liability Side 1. $350 million of Time Deposits paying 7% per year and having a duration of 2.75 years 2. $575 million of CDs paying 8% per year and having a duration of 5 years 3. $75 million of Equity Calculate the leverage-adjusted duration gap and state the interest rate risk exposure of this institution.

a. -0.9725 years; exposed to interest rate increases.

b. -1.0122 years; exposed to interest rate decreases.

c. 0.4875 years; exposed to interest rate increases.

d. -1.3 years; exposed to interest rate decreases.

e. -0.4875 years; exposed to interest rate decreases.