1. You are looking at purchasing a $175,000 home. Interest rates are 6.5% and you are looking for a 30-year loan. What would be your monthly payment?
2. If a financial institution has a positive leverage-adjusted gap, what happens to the institution’s net worth if interest rates rise? Why? Please explain in full detail.
3. Why is modified duration an inappropriate measure for a high-coupon callable bond? What would be a better measure than modified duration?