The SMM FI has assets of $12 million invested in a 30-year, 10 percent semiannual coupon Treasury bond selling at par. The duration of this bond has been estimated at 8.94 years. The assets are financed with equity and a $10 million, two-year, 8.0 percent semiannual coupon capital note selling at par.

Required: a. What are the duration, modified duration and dollar duration of the $10 million semiannual coupon capital note? (6 marks)

b. What is the leverage adjusted duration gap of SMM FI? (2 marks)

c. What is the impact on equity value if the relative change in all market interest rates is an increase of 20 basis points? [Note: The relative change in interest rates is DR/(1+R/2) = 0.0020]. (2 marks)

d. What would the duration of the assets need to be to immunize the equity from changes in market interest rates? (2 marks)