15. An investment bank currently owns two types of debt securities,

i. $120.6 million (market value) of corporate bonds with semi-annual coupon payments, an average yield to maturity of 6.85%, and an average duration of 7.4 years; and

ii. $375.8 million (market value) in mortgages, with monthly payments, an averge yield to maturity of 4.35%, and an average duration of 9.65 years.

a. What is the market value and the modified duration of the bank's debt portfolio?

b. If the standard deviation of changes in yield is .0032%, what is the financial institutions DEAR at a 0.5% level?

c. Specify the method used?