1. Safelife insurance company has $80 million in assets, $72 million in liabilities, and $8million in shareholders' equity. The duration of liabilities is 8. If Safelife wants to immunize its net worth against interest rate risk (i.e. set the duration of equity equal to zero), what should be the average duration of it's assets?
2. A Forward Rate Agreement contains an agreed interest rate of 2.7% on a 6-month loan. If settled at the time of borrowing, what amount would the borrower pay or receive on a $500,000 loan if the prevailing 6-month interest rate is 2.9%?