Interest Rates: Consider the balance sheet of a simple credit union. Suppose that the liabilities of the firm are $50M in demand deposits (checking and savings) and $50M in CDs that have an average maturity of 1 year. The assets of the credit union are all auto loans. Suppose that the current value of the car loans is $110M.

For simplicity, say that the car loans are all 5-year loans with equal monthly payments, there is no default risk, and there is no prepayment option for the loan (i.e. borrowers cannot pay off the loan early.) Approximately, what will the duration of the car loans be? For partial credit, you can provide a formula that you could use to compute the duration.