Chelsea Bank (CB) is interested in assessing its interest rate risk by using the duration approach. Assume that CB has the following assets: consumer loans ($500; 2.84), commercial loans ($950; 4.33), and long-term corporate bonds ($550; 7.65). CB also has the following liabilities: demand deposits ($250; 0.32), NOW accounts ($450; 0.49), CDs ($600; 0.55), and federal funds purchased ($200; 0.28). All dollar amounts in parentheses are in thousands; the second number is the average duration in years for that particular item. 1. Determine the weighted average duration of CB’s assets. Check figure: DURAS = 4.87 years. 2. Determine the weighted average duration of CB’s liabilities. 3. Estimate CB’s duration gap. Note: Use the equation on p.529. 4. Given duration gap determined above, if CB expects interest rates to increase, should it consider hedging its interest rate risk? Why or why not?