The banks leverage adjusted duration gap is___________(calculate to two decimals).

With this duration gap the bank should worry about__________ (rising/falling) interest rates. In fact, if the relative change in interest rates is an increase of 1 per cent, that is R/(1 + R) = 0.01, equity would change by ____________million dollars (use + / - to indicate increases / falls). The bank could_____________ (buy/sell) bond futures to create a macrohedge. Suppose that T-bond futures (contract size 1 million are currently priced at 960.000. The deliverable T-bond has a duration of nine years. Calculate how many contracts the bank should trade to hedge its risk. The rounded number of contracts is_____________ .

Liabilities Assets Duration = 2 years Equity = 10 years Duration $950 $860 $90