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6*. A financial institution has the following market value balance sheet structure Assets Liabilities and...

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6*. A financial institution has the following market value balance sheet structure Assets Liabilities and equity Cash $1 000 Certificate of deposit $10 000 Bond $10 000 Equity $1 000 Total assets $11 000 Total liabilities and $11 000 equity The bond has a 10-year maturity and a fixed-rate coupon of 10 per cent. The certificate of deposit has a one-year maturity and a 6 per cent fixed rate of interest. The FI expects no additional asset growth. (a) What will be the net interest income (NII) at the end of the first year? (Note: Net interest income equals interest income minus interest expense.) (b) If at the end of year one market interest rates have increased 100 basis points (1 per cent), what will be the net interest income for the second year? Is the result caused by reinvestment risk or refinancing risk? (c) Assuming that market interest rates increase 1 per cent, the bond will have a value of $9446 at the end of year one. What will be the market value of the equity for

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