you are measuring the sensitivity of the equity value to changes in interest rate of Raad Bank, which has the following balance sheet:

Asset = $50,000 Liabilities = $40,000

Equity = $10,000

The duration of asses is equal to 6 years and the duration of liabilities is equal to 5.5 years. Both assets and liabilities have a Kd of 10 percent per year.

a) what would the value of equity be after the interest rate is increased by 100 basis points?

b) You desire to establish position where you want to put a maximum drop in the value of equity of $400 when interest rates increase by 1 %.

Keeping the duration of liabilities the same, what duration of assets would create the desired position?