The market value of Big Sky Bank's earning assets is $600 million and the assets have an average duration of two years. The market value of the bank's funding liabilities is $550 million and the liabilities have an average duration of two years. a) What is the duration gap of the bank as it stands now? b) A T-Bond futures contract with a notional value of $100,000 and a duration of ten years is available. How many contracts should comprise the bank's position if the bank wants to have a duration gap of zero? Should the bank take a long or short position in the futures contracts? 

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a Duration Gap Calculation The duration gap is the difference between the duration of a banks assets ... View the full answer