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Consider the following two banks: Bank 1 has assets composed solely of a 10-year, 12.25...

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Finance

Consider the following two banks:

Bank 1 has assets composed solely of a 10-year, 12.25 percent coupon, $2.3 million loan with a 12.25 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $2.3 million CD with a 10 percent yield to maturity.

Bank 2 has assets composed solely of a 7-year, 12.25 percent, zero-coupon bond with a current value of $1,946,687.39 and a maturity value of $4,371,199.86. It is financed by a 10-year, 7.50 percent coupon, $2,300,000 face value CD with a yield to maturity of 10 percent.

All securities except the zero-coupon bond pay interest annually.

a. If interest rates rise by 1 percent (100 basis points), what is the difference in the value of the assets and liabilities of each bank? (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

Asset Value

 Liabilities Value
Before Interest rise After Interest rise Difference Before Interest rise After Interest rise Difference
Bank 1
Bank 2

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