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The effective duration of the pool is 7.4 years in December 1994. This high duration is the result of two factors: the average duration of

The effective duration of the pool is 7.4 years in December 1994. This high duration is the result of two factors: the average duration of individual securities of 2.74 years (most of the securities had a maturity below 5 years), and the leverage of the portfolio, which was 2.7 at the time. In 1994, interest rates went up by about 3%.

What is the loss predicted by the duration approximation?

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